Cetis d.d.

ANNUAL REPORT 2006

Change is the driving force of development Year 2006 – in all areas of operation of Cetis this was a year of changes with positive effects on the companyâ€&#x;s operation and growth. One of the most important changes introduced in the company over the past few years was doubtlessly the transformation from an intensive manufacturing company to a technologically advanced services-oriented company. The market demands change constantly and while the demand for intensive manufacturing processes is decreasing, the demand for more challenging technological services is increasing. Documents are becoming e-documents and bank cards are becoming smart cards. Cetis is adapting to these changes. The company successfully integrates graphical and information technologies and gives its graphical products a new life in the Information Age. This is reflected in a determined shift towards a technologically advanced service company.

New technologies present us with new challenges: identity management, biometry, computer sight, smart card technology, electronic content management, etc.

The company will build its future on visibility in the market and on providing high added value products and services. The company will be seeking strategic partnerships and provide the products and the services that offer the customers complete solutions.

Table of contents 1. INTRODUCTION HIGHLIGHTS FROM BUSINESS OPERATION OF CETIS, d.d., IN 2006 IMPORTANT BUSINESS EVENTS IN 2006 Important events according to the chronological view of the balance sheet A LETTER FROM THE GENERAL MANAGER OF CETIS, d.d.

THE SUPERVISORY BOARD REPORT Company ID Companies in the Group Affiliated company Management Products Services BUSINESS ORIENTATION The vision The mission The values The strategy Business goals 2. BUSINESS REPORT SALES Sales in 2006 by product groups The sales of commercial printed matter Sales of security printed matter Sales orientation in 2006 Sales objectives for 2007 COMPANIES IN THE GROUP Cetis Zagreb Cetis Skopje ASSET MANAGEMENT Financial management Investments Shares and shareholders PURCHASING AND LOGISTICS PRODUCTION RESEARCH AND DEVELOPMENT Strategic Development Graphical Technologies R&D Cetis New Technologies QUALITY MANAGEMENT EMPLOYEES 3. RESPONSIBILITY TO THE SOCIAL AND THE NATURAL ENVIRONMENTS RESPONSIBILITY TO THE NATURAL ENVIRONMENT RESPONSIBILITY TO THE USERS OF OUR PRODUCTS AND SERVICES RESPONSIBILITY TO THE SOCIAL ENVIRONMENT 4. FINANCIAL REPORT OF THE CORPORATION CETIS, d.d.

41 REPORT BY INDEPENDENT AUDITOR INCOME STATEMENT (IFRS) BALANCE SHEET AS OF 31 DECEMBER, 2006 CASH FLOW STATEMENT (IFRS) STATEMENT OF CHANGES IN EQUITY DECLARATION ON MANAGEMENT RESPONSIBILITY

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4 4 6 6 7 10 12 12 12 13 14 14 14 14 14 15 15 15 16 16 16 17 17 18 18 19 20 21 21 21 22 23 25 27 28 28 29 29 30 31 36 36 39 39 41 42 43 44 45 46

SUMMARY OF RELEVANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS 1. Company Presentation 2. Groundwork for financial statements 3. Significant accounting policies applied DISCLOSURES OF ITEMS OF THE INCOME STATEMENT 1. Revenues 2. Expenses 3. Other operating revenues 4. Net income (expenses) from financing 5. Income for Tax purposes 6. Disclosures of amounts for Auditors 7. Land and buildings, plant and machinery 8. Intangible fixed assets 9. Investments in Group members 10. Investments in associate enterprises 11. Investments available for sale 12. Loans granted 13. Deferred tax assets and liabilities for tax 14. Inventories 15. Short-term financial investments at fair value 16. Short-term loans granted 17. Receivables due from tax on profit 18. Operating and other receivables 19. Cash and cash equivalents 20. Capital 21. Net earning (loss) per share 22. Loans received 23. PROVISIONS 24. Operating and other liabilities 25. Fair Value 26. Financial instruments - risk management BALANCE SHEET INCOME STATEMENT FOR THE FINANCIAL YEAR 2006 5. FINANCIAL REPORT OF THE CETIS GROUP REPORT BY INDEPENDENT AUDITOR CONSOLIDATED INCOME STATEMENT CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER, 2006 CONSOLIDATED CASH FLOW STATEMENT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY DECLARATION ON MANAGEMENT RESPONSIBILITY SUMMARY OF RELEVANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS 1. Presentation of the Group 2. Groundwork for financial statements 3. Significant accounting policies applied 4. Groundwork for consolidation DISCLOSURES OF ITEMS OF THE INCOME STATEMENT 1. Revenues 2. Expenses 3. Other operating revenues 4. Net income (expenses) from financing 5. Income for Tax purposes

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47 47 48 49 59 59 60 61 61 61 62 62 64 66 66 67 68 68 70 70 70 71 71 72 72 73 73 74 75 75 76 80 81 83 83 84 85 86 87 87 88 88 88 89 90 100 100 101 101 102 102

6. Disclosures of amounts for Auditors 7. Land and buildings, plant and machinery 8. Intangible fixed assets 9. Investments in associate enterprises 10. Investments available for sale 11. Loans granted 12. Deferred tax assets and liabilities for tax 13. Inventories 14. Short-term financial investments at fair value 15. Short-term loans granted 16. Receivables due from tax on profit 17. Operating and other receivables 18. Cash and cash equivalents 19. Capital 20. Net earning (loss) per share 21. Loans received 22. Provisons 23. Operating and other liabilities 24. Fair Value 25. Financial instruments - risk management

103 103 104 105 105 106 107 108 108 109 109 109 110 110 110 110 111 112 112 113

CONTACTS

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1. INTRODUCTION 1

HIGHLIGHTS FROM BUSINESS OPERATION OF CETIS, d.d., IN 2006 Business operation in SIT 1000 Net sales Sales on the local market Sales on the international markets Gross profit Net profit or loss for the business period Investments Gross added value Number of employees

2005 6,405,380 4,407,714 1,997,666 1,167,798 - 651,973 438,298 2,153,997 430

2006 6.467,785 4.502,670 1.965,115 1.512,639 227,968 602,044 2,597,292 419

1. Investment value Year

In SIT 1000

Chain index

2002

2002

965,311

100.00

2003

2003

1.421,544

147.26

2004

2004

1.146,682

80.66

2005

2005

438,296

38.22

2006

2006

602,044

13.36

2. Composition of assets Asset / Year in SIT 1000

2005

2006

Fixed assets

8,981,450

9,104,062

Current assets

2,564,119

2,855,432

11,545,569

11,959,494

2005

2006

Capital

6,922,795

7,285,251

Long-term liabilities

2,582,746

2,345,318

Short-term liabilities

2,040,028

2,328,925

Total assets

3. Composition of liabilities Resource / Year in SIT 1000

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Due to the transition to IFRS the data is not comparable for more than the last two years.

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% change 0.97 2.15 -1.63 29.53 -134.97 37.36 -2.56

Total Liabilities

11,545,569

11,959,494

4. Companies in the Group Net sales in SIT 1000

2005

2006

Cetis – ZG, d.o.o.

996,782

282,444

Cetis – dooel Skopje

194,691

57,517

Cetis Print – dooel Skopje

171,201

Total

1,362,674

339,961

Note: In 2006, Cetis disinvested its assets in FYR Macedonia, i.e. its subsidiaries, Cetis – dooel, Skopje and Cetis Print – dooel, Skopje. The sale of these assets was completed in June, 2006.

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IMPORTANT BUSINESS EVENTS IN 2006 In the dynamic 2006, the company succeeded in covering the shortage of the previous year by hard work and maximum flexibility. The new business information system and a deliberate reorganisation of the company were among the factors that contributed to the successful business year. Below are some of the most important events, which will mark the company‟s business success in the future: -

-

-

The company started producing the Slovenian biometric passport.

At the company‟s Head Office, a department for issuing digital tachograph cards was formed with a concession for the next 15 years. At the same time, production of digital tachograph cards was launched.

The disinvestment of assets in the proceedings of bankruptcy of NIP Nova Makedonija was performed.

The company founded a lottery enterprise in Albania.

The company performed a reorganisation, tied considerably to the new business information system.

Barbara Sušin and Igor Plahuta received the Golden Award of the Chamber of Commerce and Industry of Slovenia for the “Innovation of the Year” for the multilayer protection of the data page of the passport (Cetis Security Multilayer – CSM).

The company received an award for the best printed wall calendar.

Important events according to the chronological view of the balance sheet Cetis acquired the majority holding of Amba CO., d.o.o., Ljubljana. The new partnership, based on complementary activities and shared development policies, will bring an additional drive, as well as a more complete supply of high-quality flexible packaging.

As of 1 January 2007, the new business information system started operating.

Cetis signed a contract with Sudan for manufacturing biometric passports, visas, software for intelligent data capturing and document issuing, and for consulting services in total value of EUR 10 million. The value of the contract is equal to one third of the planned annual turnover.

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A LETTER FROM THE GENERAL MANAGER OF CETIS, d.d.

Dear shareholders, investors, business partners and employees!

Change is the driving force of development!

In 2006, Cetis implemented a number of changes with a positive influence on the companyâ€&#x;s operation and growth. One of the most important changes introduced in the company over the past few years was doubtlessly the transformation from a manufacturing company to a technologically advanced services-oriented company. This change dictated other small and big changes in the company. The market demands change constantly and while the demand for intensive manufacturing processes is decreasing, the demand for more challenging technological services is increasing. Documents are becoming e-documents; bank cards are becoming smart cards. Cetis is successful in adapting to this change by merging printing and information technologies, thus enabling new life for its printed products in the Information Age. The key change of 2006 and the one the company is the most proud of is the business result, which was favourable as compared to the previous year. Hard work, responding to the demands of the market, implementation of the new business information system and reorganisation enabled the company to cover the shortage from the previous years. The net profit of 2006 amounted to SIT 227 million and this indicates a significant improvement of the business result of the previous year, which ended with a loss of SIT 652 million. These numbers speak for themselves.

A year of important projects and achievements All important projects completed by Cetis in 2006 were the result of perseverance, patience, knowledge, innovativeness and hard work of the employees who managed to bring to life important projects in very short available periods. The first of these projects was the introduction of capturing and processing of applications for digital tachograph cards and the manufacturing thereof. This project established Cetis as a system integrator. The second equally technologically and technically demanding project was the start of the production of the biometric passport, issued by Slovenia as the second European country. These two events were of key significance for Cetis. The company managed to show a transformation from an intensive manufacturing company to a technologically advanced company. It is far from insignificant that the biometric passport placed Slovenia among the most developed countries in the world, offering their citizens the most advanced travel documents.

In the 2006 business year, strategic reasons demanded the disinvestment of assets in the proceedings of bankruptcy of NIP Nova Makedonija. The company founded a lottery enterprise in Albania. Recently, the company completed the process of acquiring the highquality flexible packaging manufacturer, Amba, Ljubljana.

Another significant event of 2006 was the reorganisation of the company, related to the new business information system. The strategic orientation towards globalisation demanded to set up a more competitive platform. The aim of the company was to make the business processes simpler and more time-efficient - from accepting an order, to the final distribution – thus making them more cost-efficient as well. Reorganisation of the Research and Development department became a necessity. This change resulted in integrating all the IT human resources of the company in a new department, Cetis - New Technologies. The aim

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of this department is to achieve the technological synergy between the graphical and information activities that are based on advanced knowledge, and that stimulate a highly innovative environment for developmental challenges of the future.

In addition to the abovementioned successful results, the company is extremely proud of the achievements and the awards received by our employees in 2006. Our employees received two awards from the Chamber of Commerce and Industry of Slovenia – an award for the best printed wall calendar and an award for the multilayer protection of the data page of the passport. The company is also proud of the award recently received by Amba – the third place in the International DuPont Grand Prix, in the category of reproducing a digital test print.

The sales policy The expected revenues of Cetis in 2007 are 16% higher than last year, while the expenses are expected to stay the same. Our intensive sales activities are focused on the foreign markets, especially on Asia, South America and Africa. The future global competitiveness of the company will be achieved by providing strategic groups of services and products, focused on our clients‟ needs. By 2010, we are planning to be able to provide four product groups, i.e. packaging (labels, flexible packaging, smart packaging, labelling and packaging systems, readers and logistic systems), business communication systems (forms, direct mail, personalisation services, e-business, archiving, document processing), documents (identity documents, visas, central registers, identity management, border crossing point equipment) and games of chance (game organisation and systems, lottery tickets, elottery).

The existing technological solutions are successfully being replaced by the most advanced solutions to our customers‟ satisfaction. We are developing new solutions and are among the first in the market providing them. We are following market trends and adapting to them quickly, which will improve our profits in the long run. Certis is following its vision to be the best possible partner to the companies and governments in the field of identification, security and business communication, as well as a leading partner and consultant on rationalisation and cost management in the fields of packaging, business forms, identity documents and games of chance. In April 2007, our company achieved a great business goal by signing a contract with Sudan, the tenth biggest country in the world, for the production of biometric passports, visas, software for intelligent data capturing and document issuing, and consulting services. This contract is worth EUR 10 million.

The company’s business culture With the substantial changes in all areas of activity in 2006, the company has also refreshed its vision and the values on which its business culture is based. With values, such as respect for ethical principles, flexibility, dynamic approach, creativity, innovativeness, knowledge, team work and openness to new challenges, the company is adapting to its new business approach. The employees of Cetis review their goals and motives in annual interview. To improve the vertical flow of information the company introduced monthly “open door" days.

Regardless of the significant number of planned redundancies in 2006, they were not necessary due to the increased demand for workers, especially in the production phase.

Cetis does not pollute the natural environment with its activities. When deciding on new technologies, we give priority to the environmentally friendly ones. This approach helped significantly reduce the quantity of dangerous waste from the production processes in the recent years. Cetis also supports activities of other organisations concerned with protection of the environment.

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The approach of the Management In conclusion, all changes are welcome. However, it is very important that we have the knowledge, the power, the motivation, and the loyalty of our employees, as well as support from our social environment, to be able to turn these changes to the advantage of Cetis.

The reputation of Cetis as a provider of security printed matter is improving in the global market and, with it, the demand for our products. New business deals bring new employment opportunities. The success of the company is primarily the result of a carefully chosen strategy, ambitious business goals and a high level of commitment of our employees. Consistent implementation of the set sale and development strategies is reflected in our results. The basic principle of the Management of Cetis is to increase the revenue while ensuring the high quality of our products and services, controlling our costs and maintaining employee satisfaction.

With this in mind, I would like to thank all our co-workers, who have contributed with their perseverance, self-sacrifice, hard work, knowledge and innovativeness to the favourable business result in 2006.

I would like to conclude this letter with the following thought: “Many opportunities come to nothing because they look like work.�

We are all aware of the above and that is why we view work as a challenge on the way to success.

April, 2007

Simona PotoÄ?nik, MA General Manager

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THE SUPERVISORY BOARD REPORT THE SUPERVISORY BOARD REPORT 1. Activities of the Supervisory Board (SB) in 2006 In accordance with the powers and competences established by legal regulations and the company‟s Articles of Association, the Supervisory Board has been controlling the operation of Cetis, Graphic and Documentation Services, d.d.. In 2006, the Supervisory Board assembled in four meetings and reviewed the following: The The The The The The The The

2005 business report.

2006 business plan. company‟s Annual Report and the Supervisory Board report from 2005. mandate of the Management of Cetis, d.d. report on operation in the first quarter of 2006. report on operation in the first two quarters of 2006. report on operation in the first ten months of 2006. proposal for the business plan for 2007.

The activities of the Supervisory Board were concentrated on the business development of the company, significant business events, the implementation of the general strategic and business objectives, and the measures for the reduction and management of costs.

In 2006, the Supervisory Board included the following members: Ljubo Peče, Chairman of the SB, Representative of the Shareholders, Goranka Volf, Deputy Chairman of the SB, Representative of the Shareholders, Franc Ješovnik, Representative of the Shareholders, Dušan Mikluš, MA, Representative of the Shareholders, Bernard Gregl, Representative of the Employees, Marko Melik, Representative of the Employees.

2. The review of the company’s 2006 Annual Report The Supervisory Board reviewed the revised Annual Report and the Consolidated Annual Report of Cetis, Graphic and Documentation Services, d.d., for 2006 at its regular meeting on 20 June, 2007. The Supervisory Board had no remarks to either of the reports and concluded that the reports are in compliance with legal regulations, that they present a true and fair balance of assets and liabilities, financial balance and the company‟s operating profit or loss, and that the reports sufficiently present all significant events that have influenced the operation of the Company and the Group.

Based on the stated above, the Supervisory Board has accepted and confirmed the Annual Report and the Consolidated Annual Report of Cetis, Graphic and Documentation Services, d.d., for 2006.

3. The Supervisory Board’s opinion regarding the Independent Auditor’s Report The Supervisory Board has reviewed and considered the Independent Auditor‟s Report. The Supervisory Board has accepted report without remark.

4. The Supervisory Board’s opinion regarding the balance sheet profit 10

The company Cetis, Graphic and Documentation Services, d.d., has concluded the 2006 business year with a net profit of (thousand) SIT 227,968, which amounts to SIT 1,140.99 per share, or EUR 4.76 per share, calculated based on the weighted average amount of shares.

The balance sheet profit equals SIT 30,494,854.66. It is calculated as the difference between the net profit or loss in 2006, amounting to (thousand) SIT 227,968, and the covered loss from 2005, amounting to (thousand) SIT 197,473 (the influence of the application of actuarial calculations, reservations for jubilar bonuses and severance pay for employees at the transition to IFRS).

The Supervisory Board’s opinion regarding the work of Management The Supervisory Board is convinced that the company‟s Management was successful in 2006. The Supervisory Board confirms the Management‟s business reports and proposes to the Shareholders a discharge for the Management and the Supervisory Board for the 2006 business year.

20 June, 2007

Ljubo Peče, Chairman of the Supervisory

Board

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GENERAL INFORMATION ABOUT THE COMPANY

Company ID Company name: Cetis, Graphic and Documentation Services, d.d.

Head office Čopova 24, 3001 Celje, Slovenia, Europe Co. reg. no.: 5042208 TAX no.: 24635812 VAT ID: SI24635812 Nominal capital: SIT 2,400,000,000.00 Company Registry Number at the District Court in Celje: 063/10147600.

Bank accounts: Nova LB, d.d.

02234-0011655374 Banka Celje, d.d 06000-0026390798 Abanka Vipa, d.d.

05100-8000027831 Probanka, d.d.

25100-9704894196 Bank Austria Creditanstalt, d.d. 29000-0003262161 Telephone, HO: 03 4278 500 Fax: 03 4278 836 E-mail address: info.cetis.si Web site: www.cetis.si

Companies in the Group Cetis-ZG d.o.o., poduzeče za trgovino i usluge, Industrijska ulica 11, 10431 Sveta Nedelja, Croatia E-mail address: cetis@cetis.hr t: +385 1 333 5000, f:+385 1 333 5001 Cetis-SK, dooel, uvoz-izvoz, Trgovsko društvo za grafička i izdavačka dejnost, za vrabotuvanje na invalidni lica, za proizvodstvo, promet i uslugi, Sv. Kliment Ohridski 68, 1000 Skopje, FYR Macedonia E-mail address: cetissk@mol.com.mk t: +389 2,549,899, f: +389 2 549 332 Cetis Print - dooel, Uvoz– izvoz, Sv. Kliment Ohridski 68, 1000 Skopje, FYR Macedonia E-mail address: nmakedonija@mt.net.mk t: +389 2 3111185, f: +389 2 3161524 Cetis-Tirana Sh.p.k., Blu Towers, Blvd. Deshmoret e Kombit, Kati IV, Ap. A1, Tirana, Albania E-mail address: cetistirana@albnet.net t: +355 4 280 424, f: +355 4 280 425

Affiliated company Societe Nationale Des Loteries Sportives, Gabon Immeuble BICP bord de mer,1474 Avenue Georges POMPIDOU, Libreville – GABON E-mail address: florent.samba@snls.com t: +241 443 732, f: +241 443 734

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The complete annual report is available at the Cetis Head Office and on the company’s web site www.cetis.si.

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Management

Management

Simona Potočnik, MA, General Manager

Supervisory Board Ljubo Peče, Chairman of the SB, Representative of the Shareholders Goranka Volf, Deputy Chairman of the SB, Representative of the Shareholders Franc Ješovnik, Representative of the Shareholders Dušan Mikluš, MA, Representative of the Shareholders Bernard Gregl, Representative of the Employees Marko Melik, Representative of the Employees 3

Organisation

CETIS UPRAVA

PRODAJA KT

PRODAJA VT

NABAVA IN LOGISTIKA

GRAFIČNI R&R

CENT

PI&UČV

FINANCE & EKONOMIKA

PROIZVODNJA

Legenda: KT = komercialne tiskovine VT = varnostne tiskovine CENT = Cetis Nove Tehnologije PI&UČV = Poslovne integracije in upravljanje človeških virov Makro nivo organizacije – Funkcije podjetja

CETIS MANAGEMENT SALES, CPM R&D BI&HRM

SALES, SPM PROCUREMENT AND LOGISTICS FINANCE AND ECONOMICS PRODUCTION

GRAPHICS

Legend: CPM = Commercial Printed Matter, SPM = Security Printed Matter, CENT = Cetis New Technologies, BI&HRM = Business Integration and Human Resources Management The organisation macro level – Functions of the company

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The organisation scheme has been valid since 1 January, 2007 13

Products Documents Cards Forms Labels Flexible packaging Printed matter for games of chance and prize games Printed matter for direct mail Photo bags Promotional printed matter Services Consulting and project management Printing and prepress Printed matter protection Printing Variable data printing Data capturing and processing

BUSINESS ORIENTATION At the end of 2006, the company conducted a research of organisational values and organisational culture, based on which we renewed our vision and the value system.

The vision Certis wants to be the best possible partner to the companies and governments in the field of identification, security and business communication, as well as the leading partner and consultant on rationalisation and cost management in the areas of packaging, business forms, identity documents and games of chance.

The mission 1. We integrate graphics and information technology.

2. With business communication solutions we provide our clients with an optimal business process and help improve their market success.

3. With security printing solutions we ensure the best possible protection from counterfeiting and falsification.

4. We direct our sales at foreign markets with products of high added value.

5. We achieve a steady business growth.

6. We employ the best workers and promote innovativeness, initiative and development.

The values 1.

2.

3.

4.

5.

Respect for ethical principles.

Flexibility and a dynamic approach.

Creativity, innovativeness and knowledge.

Team work.

Openness to new challenges.

The strategy The company strategy until 2010 plans on focusing on strategic products and services groups, based on the needs of our clients and new synergies between the companies in the Group. The four product groups the company will be focusing on in the future are: packaging, business communication systems, documents and games of chance. The aim of forming new product groups is transparency and easier management of the companyâ€&#x;s programmes.

The central and permanent task of the company is to seek strategic partnerships, both in purchasing and sales. The company will base its growth on the foreign markets on partnerships with local companies. To pursue this aim, the company will seek potential partners and opportunities for opening its own companies in foreign markets.

Business goals -

Based on our knowledge and reputation, Cetis is a market-oriented company providing services and products with high added value.

The company has a firm position in the markets of buyers and suppliers.

The company provides a complete supply of services and products to the clients in the fields of packaging, business communications systems, documents and games of chance.

It manages complete projects.

Cetis is a creator and a generator of demand.

The company organises a network of independent suppliers (by hiring the external services of the companies) and partners, and it founds (or buys) subsidiaries.

The company manufactures only products of the highest specialised level.

Cetis will move production to local markets with lower labour costs.

Cetis is pursuing a gradual but quick and decisive shift in the companyâ€&#x;s position – from a manufacturer to a system integrator.

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2. BUSINESS REPORT SALES The net sales in 2006 amounted to SIT 6.5 billion, slightly higher than the previous year.

The largest portion of the revenue was produced with the sales of products and services in the domestic market, i.e. slightly over SIT 4.5 billion with an increase of 2% as compared to the previous year. As far as foreign markets are concerned, the highest portions of the total revenue were achieved in the following countries: Poland, Croatia, Germany, Czech Republic and Slovakia. The sales in these markets and other foreign markets amounted to SIT 1.9 billion.

The sales by individual months were close to the planned sales; however, they dropped in the last two months of the 2006 business year. This was due to the fact that some of the projects planned for 2006 were not completed on time.

In 2006, Cetis supplied 3,445 clients. The most important clients (14 key clients and 41 A category clients) created 77% of total sales.

Sales in SIT 1000 Net sales Sales on the domestic market Sales on the international markets

2005 6,405,380 4,407,714 1,997,666

2006 6,467,785 4,502,670 1,965,115

Sales in 2006 by product groups In 2006, forms represented the main portion of the total sales - 26.49%, despite the fact that their nominal value was lower than the previous year. The forms group was followed by self-adhesive labels – 15%, documents – slightly over 11%, and direct mail printed matter and cards with approximately 10% of the total sales each. The last two were followed by non self-adhesive labels and flexible packaging with approximately 2% less in value each, while 4% of sales came from the services, photo-bags and lottery tickets.

Sales according to product groups in SIT 1000 Documents Flexible packaging Photo bags Cards Printed matter for direct mail Non self-adhesive labels Forms Basic design materials Promotional printed matter Self-adhesive labels Lottery tickets Services Basic material Commercial goods Fixed assets and other sources Total

2005 559,457 166,268 214,247 379,211 649,781 617,897 1,751,406 164,149 143,177 1,171,933 208,476 113,308 24 177,268 97,968 6,405,380

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2006 699,086 403,042 229,712 598,024 649,718 452,324 1,552,845 260,458 48,703 911,998 188,899 235,143 11 136,010 101,749 6,467,785

The sales of commercial printed matter In 2006, the company successfully strengthened its position in the flexible packaging market, where it significantly improved its market share, especially in the domestic market. We wish to continue this trend and expand our offer in flexible packaging. To pursue this goal, the company acquired the high-quality flexible packaging manufacturer, Amba, d.o.o., Ljubljana, early in 2007. This type of packaging is broadly used for food, pharmaceutical and chemical industry products. At this point, the company is present in eight European markets, and the exported products share represents 55% of total production.

In the field of photo bags, the company achieved its goals, while with the direct mail printed matter the sales plan was exceeded. The sales of self-adhesive labels stayed at the same level. In this area, the company is planning a modernisation of the process machinery and a more active market approach in foreign markets. Overall, the sales plan for the commercial printed matter was not entirely achieved.

In this area, the company has determined three strategic product groups, i.e. flexible packaging, direct mail printed matter and self-adhesive labels. With the development of the graphic design aspect these product groups will be optimised, amended and standardised.

Sales of security printed matter The sales of security printed matter, consisting of three major product groups (identity documents, cards and lottery games), exceeded the 2006 sales plan in the domestic market in card production, identity card and passport personalisation, and bank card personalisation. The growth trend was recorded in both domestic and international markets.

In 2006, Cetis launched sport bets and games of chance with an affiliate company SNLS in Gabon in Central Africa, where we won a concession for ten years. Cetis has a long tradition of manufacturing printed matter for games of chance and prize games for the domestic market and for the former Yugoslavian market.

In 2006, Cetis was among the first European countries to start issuing biometric passports. The development efforts came to fruition with the successful issuing of the first passports with a memory chip in the identity page. The development efforts continue with upgrading the system of issuing and implementation of additional data in the memory chip.

In 2006, the company also started manufacturing and issuing digital tachograph cards.

This project established the company as a system integrator and as a company integrating European and Slovenian systems for data checking and issuing of tachograph cards.

In the area of bank cards, the company successfully completed the project of implementing the EMV chip card technology and started performing personalisation for one of the Slovenian banks. In 2007, we expect to perform card personalisation for the largest Slovenian bank.

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Sales orientation in 2006 The marketing strategy in the area of security printed matter is directed towards a global approach to providing system integration of travel documents. In 2006, Cetis continued its proactive marketing strategy in Africa and started marketing products in Asia, where we completed an important project of manufacturing plycarbonate cards.

A successful combination of marketing activities affirmed the companyâ€&#x;s trademark Cetisecurity in the international markets. Thus, Cetis established itself as a global security printed matter production company. The promotion of security printed matter was based mainly on presentations on international conferences. The most important event of 2006 took place on Rodos, Greece, in May, where the company presented the Slovenian biometric passport.

In 2006, the company became the leading photo bag manufacturer in Europe by installing new production equipment, which significantly increased the product output. By purchasing Amba, the company established a synergy between two complementary areas, flexible packaging production and self-adhesive stickers, which enables us to provide a better and more complete service to our customers.

In the sales area, year 2006 was marked by integration of the commercial and the technical departments to form sales product groups, in which the sales operatives and product engineers work in the market as an expert sales team. This will improve the companyâ€&#x;s customer support services. The company also put great emphasis on strengthening its sales team for the international markets. The selection processes in individual areas were completed by training of new sales operatives and by authorising agency rights.

Sales objectives for 2007 Sales of EUR 31.5 million, of which 17.5 million will be realised in the domestic market, 12.4 million on the foreign markets and 1.6 million by reselling.

Reduction of the stocks of goods by EUR 500,000.

Active marketing of the Cetisecurity trademarks, labels, flexible packaging, direct mail and games of chance printed matter.

The companyâ€&#x;s 2007 sales plan is ambitious. All activities are directed towards increasing our market share and acquiring larger complete contracts. The company will increase the sales by offering complete solutions to the customers.

We see our competitive advantage in the ability to provide high quality products within the agreed terms and at competitive prices. We follow our customers and inform them of all possible solutions. This helps them compete in the market.

Based on the successful business results of 2006, the company has decided to expand the production of those product groups where we expect a growth in sales, specifically cards and travel documents production.

18

COMPANIES IN THE GROUP Cetis Group provides complete services in the field of communication with printed and other media. We offer a broad range of security, variable and commercial printed matter, as well as graphic design. These activities are complemented by services, such as personalisation, documentation services, etc.

Cetis Group consists of the parent company, Cetis, Graphic and Documentation Services, d.d., with the Head Office in Celje, and subsidiaries, in full ownership of Cetis. The subsidiaries include Cetis-ZG, poduzeče za trgovinu i usluge, d.o.o., Cetis Print – dooel, and Cetis - dooel, Skopje. In 2006, the parent company disinvested all assets in FYR Macedonia. The sale of both Macedonian companies was completed in 2006. However, Cetis maintains its presence in the Macedonian market through sales representatives.

The company‟s business results and consolidated profit and loss accounts take into account the income statements of all companies mentioned above. Cetis also owns a company in Tirana, which does not keep independent income statements, as it only operates as a sales representative.

Cetis-ZG d.o.o., poduzeče za trgovino i usluge, Gospodarska ulica 3, 10250 LučkoZagreb, Croatia E-mail address: cetis@cetis.hr Tel.: +385 1 333 5000 Fax:+385 1 333 5001 Cetis-SK, dooel, uvoz-izvoz, Trgovsko društvo za grafička i izdavačka dejnost, za vrabotuvanje na invalidni lica, za proizvodstvo, promet i uslugi, Skopje, Sv. Kliment Ohridski 68, 1000 Skopje, FYR Macedonia (until 20.07.2006) E-mail address: cetissk@mol.com.mk Tel.: +389 2 549 899 Fax: +389 2 549 332 Cetis Print, dooel, uvoz – izvoz, Sv. Kliment Ohridski 68, 1000 Skopje, FYR Macedonia E-mail address: nmakedonija@mt.net.mk (until 21.07.2006) Tel.: +389 2 3111185 Fax: +389 2 3161524 Cetis-Tirana Sh.p.k., Blu Towers, Blvd. Deshmoret e Kombit, Kati IV, Ap. A1, Tirana, Albania E-mail address: cetistirana@albnet.net Tel.: +355 4 280 424 Fax: +355 4 280 425 Sales to companies in the Group Net sales in SIT 1000

2005

2006

Cetis - ZG d.o.o.

996,782

282,444

Cetis – dooel Skopje

194,691

57,517

Cetis Print - dooel Skopje

171,201

19

Total

1,362,674

405,083

Cetis Zagreb Year 2006 was the most successful business year for Cetis Zagreb since it was established in 1991. For the first time, the company‟s turnover was higher than EUR 5 million. With profits and depreciation, the company created an added value of EUR 600,000 and acquired a number of new clients and contracts.

Cetis Zagreb invested in new high-capability printers and in new software for data processing and variable printing prepress processes. The acquisition of Bipost in 2005 and its merger with Cetis Zagreb have proven to be sound business decisions, and are already showing results. The company is regularly repaying the loan it raised to purchase Bipost.

Slowly but surely Cetis Zagreb is nearing its objective - to be the leading hybrid mail centre in Croatia. The company possess the knowledge, the experience, the market and the human resources, and is fully supported by the parent company and its wide range of activities. The main business obstacle remains the current state of relations between Slovenia and Croatia and a negative attitude towards anything Slovenian in governmentowned companies and state institutions in Croatia.

Naturally, the company is fully aware that in the dynamic business world of today, where technological improvements are introduced daily, there is no time to relax. Good business results without bold plans for the future and a constant positive pressure on everyone involved can become obstacles of the future.

The company plans to continue its success with detailed market analyses and with qualified employees, motivated to achieve the set objectives. This is the central concern of Cetis Zagreb. Employees do not represent a cost, they represent added value. The management of the company believes that a worker who is merely a cost does not belong in the company.

2006 was marked by a change in cooperation with the parent company, which needed to adapt its capabilities to the demand in the markets controlled by the Croatian subsidiary.

Representing the parent company‟s products and services in Croatia remains a permanent task of the Croatian subsidiary. To improve its primary objective, the Croatian subsidiary was divided into two profit centres. The Trade Profit Centre is acting as a representative of foreign suppliers, while the Maling provides printing and enveloping services. The Mailing PC recorded significant growth in 2006, while the Trade PC recorded a significant decrease in sales. This is a warning to the parent company to adjust its product offer and operating conditions.

The company constantly improves its business cooperation with Zagrebačka banka, Privredna banka, Hypo-Slavonska banka, Optima, Telekom, T-mobil, Vindija, Atlantic Group, Konzum, Agram, Hrvatska pošta, Hrvatska lutrija and Stublić impex. This platform of clients has been developed by our employees for several years. Everyone active in the business field in Croatia knows these are the most successful companies in the country.

The company intends to expand its knowledge and experience towards the east. This year, the company will open a mailing centre in Serbia. Plans for the future include Bulgaria and Bosnia and Herzegovina. We believe that the general progress in these countries and 20

economic stability offer great opportunities for profitable investments. Also, it is safe to assume that there will by synergy effects as well.

Cetis Skopje Cetis had been operating two subsidiaries in FYR Macedonia that were no longer capable of following the objectives set by the parent company. The problem persisted from the previous years when Cetis had tried to stimulate buyers in FYR Macedonia by organising complex printing services in Skopje to meet the needs of the local market. This project would have opened new opportunities for employment of the local work force. The project was never realised, therefore the parent company was forced to seek a solution for the situation at hand. Although the parent company initially did not seek a buyer for both companies, we eventually succeeded in selling them. The parent company maintains trade with both former subsidiaries at an adjusted level.

ASSET MANAGEMENT Financial management Financially, the company mostly achieved its objectives in 2006. The financial situation of the company was assessed by breakdown and analysis of past and current cash flows, while taking into account the dynamic monthly planning. The company assessed the following general principles and financial management rules: -

Coherence of the size, the structure and the trends in assets, as well as liabilities.

Sustainability of operation with the provision of rational financing, limiting of Financial risks and optimal solvency with appropriate financing economics.

Achieving favourable business results with operation-derived net cash flow.

The possibility of increasing financial strength through property and assets.

To the greatest extent possible the company maintained the abovementioned principles through a limited negative turnover as compared to 2005. The company financed the current operation mainly with its own funds and resources. These were acquired with an adjustment of the investment policy and by the sale of the no longer necessary financial investments.

The emphasis of the financial analysis was based on the financial and the capital structure, as well as on assessment of creditworthiness of the company. By determining the assets unnecessary for operation and by current cash flow planning, the company secured the resources and guarantees for securing strategically important investment funding.

The 2006 business year was a very dynamic one for the company as regards financing and it demanded a quick adjustment to the new conditions. In the financial aspect, certain decisions were accepted regarding the financing of investments in the given conditions.

These decisions contributed to the overall business result. This contributed to the achievement of the two primary financial goals, i.e. ensuring solvency of the company and financing economics with controlled financial risks.

21

Due to the nature of our operation in 2006, the capital and debt ratio changed to 60.9 : 39.1, which is less favourable than in 2005. However, this ratio is a consequence of more aggressive financing, in which the company maintained term-based balancing of assets and resources.

Fixed assets were financed in entirety with capital and external long-term resources at the end of 2006. In the financing structure, which is still relatively balanced, financial measures for appropriate financial correction had to be implemented. These measures and their effectiveness are based mainly on successful operation. In 2006, the company was not as successful in management claims from operations as it was in 2005. The share of recovered claims was lower and the balance of claims higher than in the previous year.

Furthermore, the company was less efficient in stock management as they have increased in both structure and absolute value. However, the fact remains that the result of financing, regardless of additional borrowing in 2006, remained positive and had a favourable effect on the operation of the company.

We are aware that, due to the lower self-financing level, the regular operation of the company has to reach positive results in order not to put long-term loan repayment at risk (the company is currently regularly repaying its long-term obligations). The financial risks and liabilities are described in the accounting report herein.

Investments The scope of investments in 2005-2006 The scope of investments in SIT 1000 / year Intangible fixed assets Land Buildings Equipment Total

2005

2006

14,107 6,316 194,983 226,895 442,301

333,227 10,458 258,359 602,044

Investments in tangible fixed assets in 2006 were continued at a rate from 2005. The technological modernisation remains a key condition for growth and the improving of competitiveness in all areas of the companyâ€&#x;s activity. In 2006, substantial investments were allocated in intangible fixed assets. Specifically, we have invested in hardware and software for the upgrade of the business information system.

In this and the following years, the company will direct its investments into the market, and in advanced technology and knowledge. The key objective is to ensure higher productivity, responsiveness, specialisation and reliability of business processes and, consequently, lower costs.

Cash flow from investments in 2005-2006 (unconsolidated funds flow statement) Inflows (offset) Inflows (offset) in SIT 1000 / year Tangible fixed assets Financial investments Total

2005 40,208 95,560 135,768

22

2006 64,279 252,198 316,477

Outflows (offset) Outflows (offset) in SIT 1000 / year Intangible fixed assets Tangible fixed assets Financial investments Total

2005 14,106 415,916 1,729,856 2,159,878

2006 333,228 199,697 221,943 754,868

Gross added value 2005-2006 Gross added value in SIT 1000 / year Gross added value in SIT 1000 Chain Index

2005 2,153,997 100.00

2006 2,597,292 120.58

The gross added value in 2006 was significantly higher than in 2005. In 2007, the company plans to lower costs and increase realisation of investments in marketing in the domestic market and international markets, where the company will act through subsidiaries and affiliated companies. One of such companies was registered in Albania at the end of 2006. It will market games of chance. At the beginning of 2007, the company acquired 100% ownership of the flexible packaging manufacturing and trading company, Amba Co., d.o.o., Ljubljana.

We expect that these investments will improve in efficiency and in returns with a secured long-term liquidity. According to the need and the objectives of the strategy, the company will invest in tangible and other fixed assets and continue disinvestment of unnecessary companies.

Shares and shareholders The nominal capital of Cetis, d.d., is divided into 200,000 registered ordinary shares, bearing the CETG symbol and listed at the semi-official market of the Ljubljana Stock Exchange. All shares are freely-transferable. In 2006, the company implemented no change in the nominal capital. The company publishes all required information on the SEOnet portal of the Ljubljana Stock Exchange.

Similar to the recent years, the number of shareholders did not change significantly in 2006. At the end of 2006, there were 1,084 shareholders. Compared to the end of 2005, the number of shareholders decreased by 23. Three new names appeared among the ten largest shareholders in 2006 (Unimoto, NDF Holding and Breuder Henn).

23

The structure of share ownership on 31 December, 2006, was as follows: Shareholder Cetis-Graf, d.d.

Infond ID, d.d.

Kovinoplastika, d.d.

Kapitalska družba, d.d.

Slovenska odškodninska družba VS Probanka Glob. nal. sklad Unimoto, d.d.

NFD Holding, d.d.

Merkur Brueder Henn Holding Gesell.

Other legal and natural persons Total

Number of shares 78,493 27,358 18,649 15,609 14,948 12,049 12,043 3,500 530 430 16,391 200,000

Percentage of the nominal capital in % 39.25 13.68 9.32 7.80 7.47 6.02 6.02 1.75 0.27 0.22 8.20 100.00

The ten largest shareholders own 91.8 % of the total shares, issued in dematerialised form at the Central Securities Clearing Corporation, Ljubljana. On 31 December, 2006, the company maintained 201 of its own shares for the purposes stated in the second indent of Article 240 of the Companies Act (ZGD-1). The company acquired no own shares in 2006.

At the end of 2006, the share market value amounted to SIT 23,999.00, which – based on the total number of issued registered shares - represented 65,9 % of the book value according to IFRS, which amounted to SIT 36,426.26. 2006 is the first year, in which the book value of the share marked CETG increased, while its market value decreased.

Movements of market and book value (IFRS) of CETG shares in 2005 and 2006 Year / Share value movement 2005 2006

Share market value (in SIT) (31 December) 30,999.00 23,999.00

Movement of CETG share price in 2006 in EUR

24

Share book value (in SIT) (31 December) 34,613.98 36,426.26

Value ratio 89.6 65.9

The uniform price of the CETG share in the semi-official market of the Ljubljana Stock Exchange had several strong fluctuations in 2006. In December, the share price climbed back to SIT 24,000 (or EUR 100). In comparison with the SBI20 index, the CETG share market price had a negative movement in 2006, as the SBI20 index rose by 37 percentage points.

Net profit (loss) per share in 2005 and 2006 according to IFRS (in SIT) Loss – profit per share / year Net loss / profit per share in SIT

2005 (3,262.87)

2006 1,140.99

Note: Due to the negative result in 2005, the company experienced a loss per share. The calculation is based on the weighted average of the number of shares.

The policy regarding dividends The management of the company is fully aware of the positive business result in 2006, allowing for payment of the minimum dividend as promised in the last report. At the Annual General Meeting of 2006, the use of IFRS was approved. However, the implementation of IFRS required alignment of the accounting of capital that does not allow for the formation of proposal for dividend payment for 2006 regardless the positive business result.

The management plans to continue pursuing the long-term development and investment objectives and seeking new opportunities for maximising the company assets and profits, and achieving the expectations and interests of the shareholders. If the company achieves the profit planned for 2007, the management of the company shall, taking into consideration all relevant factors, propose allocation of the appropriate part of 2007 net profit to dividends.

PURCHASING AND LOGISTICS The primary objective of purchasing remains the same as in the previous years: timely purchasing of sufficient quantities of materials of appropriate quality at an optimum price.

Furthermore, one of the main objectives remains reducing the number of suppliers, increasing purchases from the highest quality suppliers and ensuring better prices and appropriate quantity discounts. The company expects the suppliers to provide high-quality materials and services, cost-efficiency and the appropriate after sale services.

The second half of 2006 was marked by company reorganisation. The purchasing and handling services were merged into a new organisational unit – Purchasing and Logistics.

Logistics deals with material flows within the company and between various companies. It ensures the meeting of needs of production on one hand and those of customers on the other. In 2006, we started the process of automation of the warehouse operations aimed at ensuring higher accuracy and expedition.

The advantage of merging purchasing and warehousing services is the simplification of stocks coordination and optimisation of ordering the appropriate quantities. The results are more cost-effective stocks management, quicker flow of financial resources and uninterrupted production processes. This merger will also simplify determination of delivery costs by comparison of purchase prices and transport costs.

25

Year 2006 A significant factor influencing purchases in 2006 was the closing of several paper production plants in Europe. The closing was necessary because the supply paper, especially pulp-free paper, exceeded the demand. This resulted in increased paper prices, especially in the last quarter of 2006. This trend is continuing in 2007. The highest price increase was noted for self-copying paper, which represents 10% of all company purchases of materials.

The effect of higher oil prices was reflected in the purchasing prices of materials for label production. Higher oil prices affected the paper industry, especially where oil was used as an energy source, which was one of the factors contributing to the closing of production plants.

The company stocks were increased even though the company was planning to reduce them. The reason for the increase lies mainly in the expensive materials Cetis uses for manufacturing Slovenian biometric passports (memory chips, polycarbonate and kinegrams).

Due to the higher prices in the global market, the company was not able to reduce material costs significantly.

Orders and receipts Year The total number of orders The total number of receipts Value in SIT 1000

2005 2006 5,371 5,006 5,864 5,833 2,413,061.21 2,513,955.88

Conclusion: The total value of purchases was 4% higher than in 2005. Cetis purchased 54,32% of goods in the foreign markets and 45,68% in Slovenia. The share of local purchases was a good 3% higher than in the previous year. This is a consequence of the fact that some of the purchases are performed through Slovenian traders, who are also our customers, even though these materials could be purchased directly from the manufacturers.

Relations with suppliers Upon request, the suppliers regularly inform the company about the news in their product programmes, on the markets and about the current trends. Thus, their experience helps the company in the introduction of new technologies.

Cetis endeavours to establish long-term relationships with its suppliers. This is beneficial for both the suppliers who can base their planning on preordered quantities and Cetis as reliable suppliers help the company provide its customers with high-quality products and new solutions. The suppliers are aware that Cetis is a reliable partner, meeting its obligations regularly.

Supplier assessment

26

In 2006, we assessed 120 suppliers. 31 suppliers were assessed as A-category suppliers, 83 as B-category and 6 as C-category suppliers.

In accordance with ISO standards, the list of approved suppliers includes only the suppliers categorised as A or B. The subjects of this assessment performed once a year are the prices, the payment terms, the delivery time, respecting the delivery deadline, the number of complaints and their handling thereof, customer support services (support in development of new products, information regarding the news in their production, information about the trends in the global market), working in compliance with the ISO 9000 and ISO 14001 standards and meeting the environmental protection requirements.

Cetis conducts business with suppliers from the C-category only if no other option exists.

Cetis informs the suppliers of the results of the assessment in writing and, cooperating with them, endeavours to achieve improvement in areas where a lower score was attained.

Year / Share of suppliers by individual groups in % 2005 2006

A 31 31

B 57 83

C 4 6

Conclusion: The number of suppliers in group A has remained the same as in the previous year. The company has succeeded to improve cooperation with suppliers over the past few years, which is reflected in an increase in the number of companies in group A. In 2006, the number of suppliers in group B has increased significantly. This increase is due to the greater number of assessed suppliers. However, this increase also reflects the fact that mutual expectations were aligned and that a firm foundation for future cooperation has been set.

Plans for 2007 In 2007, an important project of the Purchase and Logistics department is to implement warehouse automation, which will improve the currency and the accuracy of operation, shorten administrative procedures, etc.

In 2007, the company will actively seek alternative paper suppliers outside of Europe, especially in South America.

PRODUCTION The production in 2006 was characterized by an increase in products and services incorporating information technology, i.e. documents and cards, and by increased production of flexible packaging.

At the beginning of the year, the company successfully started manufacturing and issuing digital tachograph cards. After obtaining the state concession, Cetis took over not only the manufacturing of chip-cards but also managing of the process of card acquisition, personalisation and a complete set of other related services.

The most demanding project in 2006 was the start of the production of biometric passports, which was successfully accomplished by Cetis. The project was demanding as it involved merging and implementing advanced graphical and information technology solutions. The company has also launched EMV bank card personalisation.

In 2006, Cetis continued the development of prepress processes, which has shown results in the growth of sales and in the printing quality of packaging labels, as well as in the 27

decrease of complaints, product rejection and production standstill due to printed matter prepress processes.

Cost reduction and production rationalisation are directly reflected in lower costs with respect to turnover in 2005. The quantity of production hours was by 2.5% lower than in 2005, which demanded a reduction of the number of employees by the same percentage.

Plans for 2007 Development activities for the personalisation of EMV cards have not yet been completed and the company is preparing at an increased pace for the majority of banks to implement transition to chip cards. The projects of cost reduction and production optimisation and rationalisation will be continued in 2007. The process will entail investments in equipment for the growing production segments and upgrades of the machinery with the aim of elimination of bottle necks.

Overview of the planned and achieved production hours Hours / Year Available hours Planned production hours Achieved production hours Administrative production hours Total

2005 732,107 277,187 207,330 14,242

2006 663,073 256,719 201,971 11,976

221,572

213,947

Conclusion: The number of planned hours in 2006 was lower than in previous years. The planned production hours were achieved with 79%, which is 4% more than the last year.

The trend of reduction of administrative hours is continuing and was the lowest in three years.

RESEARCH AND DEVELOPMENT In recent years, the market demands have been changing constantly and while the demand for intensive manufacturing processes is decreasing, the demand for more challenging technological services is increasing. Documents are becoming e-documents, travel documents are becoming electronic travel documents and bank cards are becoming smart cards. Cetis is successful in adapting to this changes by merging printing and information technology, thus enabling new life for its printing products in the Information Age. As a consequence, the Research and Development needed reorganisation. Since 1 January 2007, the R&D department has been divided into three departments - Strategic Development, Graphical Technologies R&D, and Cetis New Techonologies (CeNT).

Strategic development In the area of strategic development in 2007, the emphasis will be on completing the strategic plan until 2010, the central objectives of which are as follows: 28

The formation of products‟ and services‟ groups, based on customers‟ needs, and creating new synergies between the companies in the Group. The planned development and sales orientation divides the products into four groups: packaging, business communication systems, documents and games of chance.

The formation and implementation of a plan for the specialisation of our production with the aim of maintaining the provision of highly specialised and competitive products and services.

Graphical Technologies R&D In 2006, the Graphical Development department was focused on the project of the production of biometric passports, which was successfully completed in cooperation with the CeNT department.

Cetis incorporated in the passport several new security elements, which were the product of its own knowledge. One of these elements is a patented invention binding of the polycarbonate data page with the passport booklet (Cetis Security Binding - CSB) – which adds the passport an additional security element that is also functional and aesthetic. The binding is patented in Slovenia, and a patent application has been submitted to the European Patent Office.

In the area of security printed matter, the company has been developing additional card protection elements. In the area of games of chance, the company has also been developing new forms of printed matter protection, as well as new game systems. The company has also prepared the project for building a new printing facility for producing games of chance printed matter.

To the self-adhesive labels product group Cetis has added the so called “label booklets”, intended for labelling of products, the use or presentation of which demands larger quantities of data. In 2006, the company also launched the regular production of label booklets in Braille. The Graphical Development department invested a great deal of development work in flexible packaging.

The department also contributed to the process of implementing the new business information system, specifically in the area of standardisation of the business process.

For the second year in a row, the Graphic R&D received the Golden Award of the Chamber of Commerce and Industry of Slovenia for the “2005 Innovation of the Year” for the multilayer protection of the passport data page – Cetis Security Multilayer. The awarded innovators are experts in graphical development, Barbara Sušin and Igor Plahuta.

Plans for the future: In the area of games of chance and prize games, the company will continue developing new ways of printed matter protection and new game systems.

In the area of multilayer labels, the company will, in addition to label booklets, develop other forms of multilayer labels and radio frequency based labels (RFID).

In the area of flexible packaging, the company will follow the development of smart packaging, the use of which is increasing globally, and the development of flexible packaging for the cosmetic and food industries.

29

Cetis New Technologies The restructuring of the IT R&D department has also become a necessity. This has led to the merging of all IT human resources in Cetis into one department – Cetis New Technologies. The objective of the formation of CeNT is to achieve an efficient technological synergy between the graphical and information technology activities, based on specific projects and expert knowledge, while stimulating an innovative environment for future development challenges.

In 2006, information technology research and development department cooperated with other departments and external partners. The following projects were successfully completed: the biometric passport of the Republic of Slovenia, smart cards for digital tachographs, electronic capturing and electronic archiving of documents for several established companies in Slovenia, and EMV smart cards.

Cetis also acquired official certification for bank card personalisation. Companies offering bank card personalisation services have to meet very strict requirements regarding logical and physical security and quality. Cetis is the only company in Slovenia that has been certified for bank card personalisation by MasterCard.

Plans for the future In the future, CeNT will intensify its activities in e-business and e-archiving.

With the appropriate employee recruitment and development, CeNT will build up the intellectual capital, ensure the required employee competence and provide employees with challenges in the developing fields of technology.

The focus in the near future will also be on identity management, biometry, computer sight, development of smart chip based products, web documenting and archiving systems and smart card technology management.

QUALITY MANAGEMENT Quality and excellence are the main objectives in all operating areas of Cetis. The ambition of being the best is institutionalised in all key processes.

The company strives for constant improvement through process control, validation methods, the encouraging of rigorous change management procedures and risk management. At the company and department levels, quality is stimulated with proactive programmes for re-engineering and optimisation. At the individual level, the company provides employee training for routine task reassessment with the aim of improving employee skills and efficiency.

Cetis uses the methodologies of prevention and correction measures with the aim of improving customer satisfaction through improvements in products and services.

Interfunctional team work and statistic process control play the key roles in achieving the highest standards.

30

Quality management is based on quality standards in compliance with the following international standards: ISO 9001:2000 Quality Management System.

ISO 14001 Environmental Management System.

ISO 17799 – Company Security Management System.

EMV (Eurocard, MasterCard, JCB) certificates testifying to the required quality of organisation of logical and physical security.

ISO 27001 – Information Security System.

CQM (Card Quality Management), a constituent part of the EMV standard, testifying that the quality of our products is controlled and at an appropriately high level.

31

Plans for 2007 Regarding certification, the company has set the following objectives for this business year: Establishment of the system of protection and health at work in accordance with the OHSAS 18001 standard – Occupational Health and Safety, no certification.

Upgrade of the EMV standard – a certificate authorising the company for production of bank cards in addition to the personalisation.

Continuing of active cooperation in the group of companies actively involved with the establishing of international standards for determining the travel document testing methods ISO/IEC/JTC1/SC17/WG3/TF4.

EMPLOYEES The characteristics of 2006 2006 was a challenging year as regards human resources management. Due to unfavourable results in 2005, the company was forced into reorganisation, the consequence of which was the decreasing of the number of employees. 39 employees left the company in 2006, most of them due to termination of the employment contract from business reasons and some of them due to retirement. Another challenge of 2006 was the new systemisation of jobs, ensuing from the implementation of the new information system and the signing of new contracts with all employees.

The activities related to the optimisation of the company operation and decreasing of the number of employees are still in progress. In most cases, laying off is performed by termination of the contracts with older employees due to business reasons when the employees meet the minimum requirements for the acquisition of the right to an old-age pension, or by termination of the contract if the employee meets the requirements for unemployment benefits for the period until he or she is granted the right to an old-age pension.

Plans for 2007 As regards human resources, the company has set the following objectives for 2007: - The establishment of the mechanisms for assessing training efficiency – the ROI indicator (the return of the investment in training). The objective is to systematically improve the employees‟ competence and organise goal-oriented training of each employee, through which the training efficiency assessment mechanism can be set up.

- The project of renewal of the human resources management (HRM) information system. The company will set up comprehensive indicators and a system for automatic monitoring thereof. The project will be accomplished by upgrading the current system. The objective of the project is to organise all analytical processes into a few areas, accessible to users through an Internet portal, and used as a grounds for decision making.

- The project of the conceptual restructuring of the HRM system in the following aspects: Defining the competences of the key human resources.

Assessment of work success and efficiency.

Assessment of training success and efficiency.

Integration of the systematisation and the reward system (wage system).

32

Annual interviews.

Development of human resources.

Setting up of a comprehensive system for monitoring absence from work and the appropriate sanctions.

Communication with the employees The company is well aware that its success depends on the efficiency and satisfaction of its employees. This area can be greatly improved. In 2006, the company endeavoured to communicate to the employees, mainly through publishing a company newsletter, the importance of the culture of business communication and of general knowledge from the graphical field of expertise. Among other activities at the end of the year, the company awarded best workers and awarded employees, celebrating their 10 th, 20th or 30th jubilee of employment in the company.

At the beginning of 2007, the company renewed its value system based on a research performed at the end of the previous year. The new value system will be actively communicated throughout this year. The company will also organise a project for improving awareness regarding the importance of health to the employeesâ€&#x; personal and professional lives.

The number of employees per organisational unit (OU) 2005 OU Management Common services Finance and economics Marketing Research and development Production Total

no. of employees

2006 no. of employees

2 22

0.48 5.25

2 21

0.48 5.01

IND 05/06 100.00 95.45

13 95

3.10 22.67

13 93

3.10 22.20

100.00 97.89

2.86 66.35 100.00

100.00 97.20 97.44

%

12 286 430

2.86 68.26 102.63

12 278 419

%

Conclusion: At the beginning of the year, the company was planning to reduce the number of employees by 100 due to unfavourable business results in 2005. However, during the year the needs for workers in some of the production units arose. Thus, the company has terminated 16 employment contracts due to business reasons, 5 employees have retired and a few employees have resigned from work.

Employee education level Education

2005 no.

II. Primary school III. Vocational school IV. Vocational school V. Secondary school VI. Vocational College VII. University degree

104 7 142 109 27 37

2006 %

no.

24.2 1.6 33 25.3 6.3 8.6 33

%

96 7 138 106 29 39

23 1.7 33 24.6 6.9 9.3

VIII. Master's degree Total

4 430

0.9 100

4 419

1 100

Conclusion: Cetis is a manufacturing company. Most of the employees in production have vocational or secondary education.

34

Labour costs and salaries in SIT / %

2005

2006

Average gross salary in Cetis in SIT

252,818.00

252,452.45

Average gross salary in the branch in Slovenia in SIT

244,535.00

Deviation from the branch average in % Labour costs in the structure of revenues in %

254,277.21

3.27

- 0.72

30.36

29.18

Conclusions: The company salaries are less than 1% below the branch average in 2006.

The total wages have increased by 9.3% between January 2006 and January 2007 (taking into account all employees), or by 2.3% (without individual contracts). The labour costs in the structure of revenues have decreased by slightly more than 1% as compared to the previous year.

Education and training costs Education in SIT 1000 Seminars Computer training Foreign languages Trade fairs Part-time study Scholarships Total

2005 25,066.30 2,386.75 3,536.93 9,264.73 7,963.87 7,860.11 56,078.70

2006 50,179.96 836.21 1,710.09 8,995.98 5,684.68 6,364.08 73,771.02

IND 05/06 200.19 35.04 48.35 97.10 71.38 80.97 131.55

Conclusions: The company increased investments in education as compared to 2005, mostly due to the implementation of the new business information system. The average investment in education and training per employee amounted to SIT 176,064.49. The planned system of assessment of training efficiency is aimed at monitoring the return of the investment in education - how, when and to what extent it is returned.

35

Statistical data for the last two years Category Number of employees Female employees in % Male employees in % Average age of female employees Average age of male employees Average term of employment of female employees Average term of employment male employees Share of the permanently employed Share of the temporarily employed Share of trainees Fluctuation level Share of women in management Arrivals Departures

2005 430 37.21 % 62.80 % 41.89 yrs 41.65 yrs

2006 419 36.30 % 63.70 % 42.18 yrs 41.71 yrs

22.78 yrs

22.98 yrs

21.56 yrs

21.48 yrs

95.80 %

95.50 %

4.20 %

4.50 %

7.09 % 27.27 % 11 32

7.51 % 30.00 % 23 34

Conclusions: The trend of decreasing the number of employees is continuing, while the age structure and the duration of the term of employment are increasing. Fluctuation in 2006 amounted to 7.5%. The share of female employees in the management structure has increased.

An overview of sickness leave in 2006 in % Months / sickness benefits in % January February March April May June July August September October November December Average

Sickness benefits at the cost of the company 3.94 3.75 3.81 4.75 4.34 4.30 2.88 2.86 3.45 5.06 4.63 4.05 3.99

Reimbursed sickness benefits 2.29 2.69 2.52 1.67 2.16 2.42 2.03 1.77 1.93 1.85 2.67 2.37 2.20

Conclusions: Sickness leave decreased by 1% on average in 2006.

Safety and health at work report 36

Total 6.23 6.44 6.33 6.42 6.50 6.72 4.91 4.63 5.38 6.91 7.30 6.42 6.18

In 2006, all regular health and safety at work activities in compliance with the Occupational Health and Safety Act (Official Gazette of the RS, No. 56/99) were performed, in particular: - theoretical and practical training of employees regarding safety at work and fire safety (100 participating employees) - preventive health examinations for employees - 50 employees, - selection, procurement and implementing of working equipment and technologies complying with EC norms and fulfilling all regulative requirements of the local legislation (declaration of conformity, noise levels, mechanical dangers, environmental protection, etc.), - periodic inspections and testing of process equipment (acquisition of operating licenses for 100 machines), - inspections and testing of fire fighting equipment (fire extinguishers, hydrants).

Long-term activities The following are the main measures important for long-term improvement of health and safety at work:

-

-

In spite of its efforts, the company did not attain the OHSAS 18001 (Occupational Health and Safety standard) certificate in 2006. These activities are continued in 2007.

Regular supervision of the health status of the employees, timely discovery of occupational illnesses, preventive health examinations by the authorised doctor and implementing of target health examinations for specified groups of job positions.

Consulting performed by external experts for safety at work in the selection, purchase and introduction of new working equipment and new technological procedures in the company.

Overview of accidents at work in the past two years

Number of accidents in the past two years

37

3. RESPONSIBILITY TO THE SOCIAL AND THE NATURAL ENVIRONMENTS RESPONSIBILITY TO THE NATURAL ENVIRONMENT A responsible attitude towards the natural environment is one of the conditions for a healthy working environment. Our company is aware of this and therefore we observe the strict environmental guidelines of the environmental protection policy. Cetis is not a heavy polluter of the environment. Nevertheless, we work actively on minimising the effects of our activities on the natural environment – from raising environmental awareness and promoting knowledge of our employees, to considering the environmental aspect when acquiring new technologies.

Implementing environmental objectives and programmes in 2006 Cetis has concluded the largest environmental protection project so far. We have built a modern warehouse with optimal conditions for storing dangerous chemicals and waste. This investment significantly reduced the risk of environmental disasters, such as fires and dangerous chemical spills into the sewage system.

In accordance with the environmental policy, Cetis has significantly reduced the annual quantity of dangerous waste by 36.7% compared to 2005.

We have also achieved our annual plan for reduction of trade waste by 11.5% compared to 2005.

The company fully implemented the logistics and use of returnable cleaning cloth, which meant a 35% reduction of dangerous waste, i.e. the cleaning cloth contaminated with dangerous substances.

The company has successfully completed the re-certification assessment of the management system according to the ISO 14001 certificate and has fulfilled the requirements for the ISO 14001:2004 certificate.

The company cancelled the programme of installing the plant for the removal of silver from the waste water, as the presence of silver in the process was reduced to the appropriate level with the implementation of the BAT technology.

Cetis concluded an agreement for the disposal of waste PVC with a waste treatment company.

In 2007 the company will: -

-

Renew and modernise the short-term storages for dangerous substances and completely abolish the flow of flammable and dangerous substances in the company premises.

Acquire environmental permits for all equipment emitting substances into water.

Reduce the quantity of trade waste by 10%.

Reduce the quantity of dangerous waste by 5 %.

Long-term objectives The following remain long-term objectives to be completed by 2010: - reducing the quantity of waste by 30% compared to 2003 (the company has succeeded in reducing waste by 20% to date), and - improving environmental protection awareness of our employees.

38

Investments in environmental protection in the past four years Investments in environmental protection

Investments in SIT 1000 95,856 28,251

Implementation of the CTP technology Implementation of the flexo CTP technology Construction of a dangerous waste warehouse Total

79,081 203,188

Note: The company did not make any significant investments in environmental protection in 2006.

The quantity of trade waste 2005 75.9

Trade waste in tons

2006 67.2

Conclusions: With more than an 11% reduction of trade waste in 2005 Cetis has achieved the objective set for 2006.

The quantities of dangerous waste in tons Dangerous waste

2005

2006

The change in % 2005/2006

Cloths

15,875 10,301

Dangerous substances‟ packaging

10,296

400

6,105

6,863

+12.4%

Adhesives

830

1,540

+85.5%

Toners

495

345

-30.3%

2,564

1,012

-60.5%

780

1,028

+31.8.%

3,764

3,546

-5.8%

Dyes

Solvents Fixers Developers Total

40,709 27,041

-35.1% -96.1%

-36.7%

Conclusions: We conclude that the company is faithful to the implementation of its environmental policy of reducing dangerous waste. The total quantity was reduced by more than a third compared to the previous year. The largest contribution to this significant reduction is the lower quantity of contaminated dangerous substances‟ packaging achieved mainly through consistent clearing and cleaning of packaging units. All dangerous substances‟ packaging, which was previously disposed of as dangerous waste, in now processed in the waste packaging disposal system as non-hazardous waste. By implementing returnable cleaning cloths, Cetis achieved a significant reduction of the quantity of waste cloth, contaminated with dangerous substances. The quantities of some other types of dangerous waste were also reduced – waste toners by slightly less than a third, waste solvents by more than a half and waste developers by a lesser percentage.

39

We have found that there was an increase in the quantities of certain types of waste.

However, this increase is a minor portion of the total waste: the quantity of waste dyes has increased by a 10% as a consequence of better cleaning of dangerous substances‟ packaging, the quantity of waste adhesives has increased by 85%, this type of waste reached the level of 2003 as a consequence of an increase in production, the quantity of waste fixers has increased by a third as a consequence of an increase in the prepress processes.

Packaging Cetis produces waste packaging not considered municipal waste and an insignificant portion of waste packaging from direct import. Cetis produced 145 tons of paper packaging waste and 8 tons of plastic packaging waste in Slovenia. The quantity of the packaging waste increased from 2005 due to an increase in production. The company‟s waste does not represent a burden on the environment as it is remitted for treatment to the company Slopak in accordance with the legislation.

Air emissions The advanced technological equipment and the company‟s dedication to the use of nonhazardous process materials result in minimum air emissions by Cetis. Heating is based on natural gas, which is considered to be an environmentally friendly form of heating.

2005 308,049

2006 238,323

Natural gas consumption in ccm Conclusions: The consumption of natural gas in 2006 decreased by more than 20% compared to the previous year, which was most likely due to a mild winter.

Electrical power

Electrical power consumption in kWh

2005 7,603,110

2006 7,492,920

Conclusions: The consumption of electrical power has an indirect influence on the environment. In 2006, the consumption was lower than in 2005 by 1%, and equal to the consumption in 2004.

Water emissions By investing in the BAT technology, the company has reduced the concentration of silver in waste water. The measurements of the competent institutions show that the company‟s wastewater is within the legally prescribed levels for emissions into the municipal sewage system.

Water consumption in cbm

40

2005 18,331

2006 13,090

Conclusions: The water consumption in Cetis is lower than in 2005 by approximately a third, and more than a half lower than in 2003. The implementation of BAT technology (the best currently available) in the prepress department in 2003 is also reflected in water consumption.

Prevention and correction measures In 2006, the company did not perform any significant prevention or correction measures.

In most cases of violation of safety and health protection at work the reasons were the inconsistent separation of waste and inaccessibility of fire extinguishers.

The prevention and correction measures in Cetis are issued by the head of safety & HSE & quality systems, usually orally or via e-mail.

Environmental communication In accordance with the Rules on Environmental Management, the company keeps internal and external records on environmental communication. We inform our employees and business partners about our environmental activities periodically, with every important project or investment and in the annual report.

The employees are regularly informed about our environmental activities with notices on the notice boards, via e-mail and in meetings. We expect our employees to contribute relevant suggestions for improvement. The employees are also constantly trained on matters relating to environment protection and safety at work with the purpose of improving our organisational culture in terms of higher environmental awareness. Each individual at Cetis is obligated to implement our environment protection policy and to act in accordance to the provisions thereof.

OUR RESPONSIBILITY TO THE USERS OF OUR PRODUCTS AND SERVICES Our company is dedicated to both the implementation of the highest standards and environmental responsibility, which is reflected in the long-term relationships we have with all our stakeholders.

Cetis manufactures socially responsible and environmentally friendly products. We give special attention to the chemical content of our products and to their end of life disposal.

The company acts in accordance with the Restriction of Hazardous Substances Directive (RoHS) by ensuring early involvement of our partners in the supply chain and by regular assessment of the aforementioned requirements.

We are proactive as regards health and safety by controlling and minimising the influences and risks of our operations and products for the benefit of people and the environment.

Long-term relationships with our clients and our suppliers are the basis for responsible business management.

41

RESPONSIBILITY TO THE SOCIAL ENVIRONMENT Cetis is involved in the local and the wider community with a variety of programmes and initiatives. The company also supports other organisations with funds for sponsorships and donations. These funds had to be adjusted in 2006 due to a less favourable business result, therefore Cetis allocated less funds to this purpose, i.e. 0,6% of the annual turnover.

The company has been a sponsor of the Pivovarna Laško Handball Club, the Kladivar Athletics Club and other sport associations and clubs for several years. In 2006, the company donated funds to the humanitarian cause “Dobra misel” (Positive Thought) initiated by Kapitalska Družba, to individuals in need of humanitarian help, and to kindergartens and schools.

Since graphics is among the company‟s activities, we also sponsor printed material. In 2006, we sponsored the SNG Maribor theatre, the NK Maribor football club, the IPA World Congress, the Slovenian Marketing Festival, etc.

The company does not use a special code of conduct. We inform the public in accordance with the applicable legislation.

42

4. FINANCIAL REPORT OF THE CORPORATION CETIS, d.d.

Auditor's report

43

INCOME STATEMENT (IFRS) In SIT 1000 Notes

Achieved in 2006

1.

INCOME

1

2.

Purchase value of sold quantities

2

-363,588

-324,286

3.

Production costs

2

-4,591,558

-4,913,296

4.

Purchase value of sold quantities and production costs

2

-4,955,146

-5,237,582

A.

GROSS PROFIT

1.512.639

1,167,798

5.

Other operating revenues

3

240,111

156,454

6.

Sale costs

2

-1,101,468

-1.159,148

7.

Costs of general services

2

-707,046

-787,395

8.

Other operating expenses = Other income, expenses and costs (5+6+7+8)

6,467,785

Achieved in 2005 6,405,380

-70,549

-131,745

-1,638,952

-1,921,834

-126,313

-754,036

B.

PROFIT OR LOSS ACCOUNT WITHOUT FINANCING COSTS

9.

Revenues from financing

4

455,827

202,478

10.

Costs of financing

4

-124,752

-142,843

C.

NET REVENUES FROM FINANCING

4

331,075

59,635

D.

PROFIT OR LOSS BEFORE TAXATION

204,762

-694,401

b) Deferred tax

5

23,206

42,428

12.

Income for tax purposes

5

23,206

42,428

E.

PROFIT AFTER TAXATION

227,968

-651.973

1,140.99

-3,262.87

Net profit (loss) per share (in SIT)

21

44

BALANCE SHEET AS OF 31 DECEMBER, 2006

Notes

31 December, 2006

In SIT 1000 31 December, 2005 5,103,314

ASSETS 1.

Land and buildings, plant and machinery

7

4,534,199

2.

Intangible fixed assets

8

349,489

60,653

4.

Investments in Group members

9

406,397

450,666

5.

Investments in associate enterprises

10

17,256

11,326

6.

Investments available for sale

11

3,345,434

3,071,702

7.

Loans granted

12

312,342

158,438

8.

Deferred tax receivables

13

138,945

125,351

SA.

Total fixed assets

9,104,062

8,981,450

1.

Inventories

14

823,293

753,916

2.

Short-term financial investments at fair value

15

440,690

462,322

3.

Short-term loans granted

16

8,639

20,027

4.

Receivables due from tax on profit

17

0

67,465

5.

Operating and other receivables

18

1,407,989

1,228,173

6.

Cash and cash equivalents

19

174,821

32,216

SB.

Total short-term assets

2,855,432

2,564,119

S.

TOTAL ASSETS

11,959,494

11,545,569

CAPITAL AND LIABILITIES 1.

Issued capital

2,400,000

2,400,000

2.

Capital reserves

4,279,822

4,279,822

3.

Reserves (legal and statutory)

4.

Retained profit

5.

Own shares

6.

Fair value reserve

KO.

Total capital

1.

4.

5.

Deferred tax payment

KO.B.a)

Total long-term liabilities

2.

Loans received

22

897,523

790,055

3.

Operating and other liabilities

24

1,431,402

1,249,973

KO.B.b)

Total short-term liabilities

2,328,925

2,040,028

KO.B.

Total liabilities

4,674,243

4,622,774

KO.

TOTAL CAPITAL AND LIABILITIES

11,959,494

11,545,569

5,645,903

5,817,767

409,611

409,611

36,726

-191,397

-6,231

-6,231

165,323

30,990

20

7,285,251

6,922,795

Loans received

22

1,902,793

2,100,163

Provisions

23

383,889

453,387

58,636

29,196

2,345,318

2,582,746

Off-balance sheet assets (liabilities)

45

CASH FLOW STATEMENT (IFRS)

In SIT 1000 Achieved 2006

Achieved 2005

CASH FLOW FROM OPERATION Profit or loss in the accounting period

227,968

-651,973

Offset for:

627,022

1,011,547

Depreciation of land and buildings, machinery and equipment

791,343

904,261

Depreciation of intangible fixed assets

44,391

59,329

(Compensation of) loss due to impairment

15,384

78,220

Negative exchange rate difference

2,351

5,127

-252,198

-95,560

122,401

137,715

-6,138

-5,715

Revenue from decrease of fixed provisions

-90,512

-71,830

OPERATING PROFIT BEFORE THE OFFSET OF NET OPERATING ASSETS AND PROVISIONS

854.990

359,574

-320,973

-130,127

Revenue from investments Investment expenses Revenue from the sale of buildings, machinery and equipment

Offset of operating and other receivables Offset of inventories

-66,100

150,917

Offset of operating and other liabilities

91,539

30,854

Offset of provisions and employee earnings

21,013

26,274

-274,521

77,918

CASH FLOW FROM OPERATING ACTIVITIES Paid interests

-2,661

Paid tax on profit

-40,231 -179,506

NET OPERATING CASH FLOW

577,808

217,755

64,279

40,208

INVESTMENT CASH FLOW Inflow from the sale of buildings, machinery and equipment Inflow from the sale of investments

252,198

95,560

Interest received

19,452

26,261

Dividends received

73,892

63,804

Outflows from acquisition of buildings, machinery and equipment

-199,697

-415,916

Outflows from other investments

-221,943

-1,729,856

Outflows for acquisition of intangible assets

-333,228

-14,106

NET INVESTMENT CASH FLOW

-345,047

-1,934,045

FINANCING CASH FLOWS Repurchase of own shares

-4,139

Changes in capital

155

-159,500

1,089,507

2,792,404

-1,179,410

-1,110,306

-408

-155,990

NET FINANCING CASH FLOW

-90,156

1,362,469

Net increase in cash and cash equivalents

142,605

-353,821

32,216

386,037

174,821

32,216

Granting of loans Repayment of loans Dividends paid

Cash and cash equivalents at the beginning of the period CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 46

STATEMENT OF CHANGES IN EQUITY (IFRS) In SIT 1000

Issued capital Balance as of 1 January 2005

Legal and statutory reserves

Capital reserves

2,400,000 4,341,759

617,340

Own shares -2,249

Loss 2005 Coverage of loss Dividend payments and bonuses

Retained profit 350,567

-61,937

-207,729

7,792,394 -651,973

269,666 -159,500

-159,500 -53,987

2,400,000 4,279,822

409,611

-3,982

-157

-6,231

-191,397

Profit 2006 Dividends from own shares Increase in fair value Balance as of 31 December 2006

84,977

Total capital

-651,973

Decrease in fair value Repurchase of own shares Balance as of 31 December 2005

Fair value reserve

2,400,000 4,279,822

409.611

-6,231

-53,987 -4,139

30,990

6,922,795

227,968

227,968

155

155

36.726

134,333

134,333

165,323

7,285,251

The Management of Cetis, d.d., confirms the accounting statements and notes thereto for the business year ended on 31 December, 2006.

47

DECLARATION ON MANAGEMENT RESPONSIBILITY The Management is responsible for the preparation of the accounting statements in a manner that presents the actual and fair representation of the operation at the end of the business year and of the income statement for the relevant period.

The Management confirms that the appropriate accounting standards were applied consistently and that the accounting estimates were formed exercising reason and discretion. The management confirms that the accounting statements are in compliance with the International Accounting Standards.

The accounting statements were formed based on the assumption of continued operation of the company.

The Management is responsible for the appropriately conducted accounting, for the implementation of the appropriate measures, for the protection of the companyâ€&#x;s assets, and for the prevention and the disclosure of any fraud or other irregularity.

March, 2007 Simona PotoÄ?nik, MA General Manager

48

SUMMARY OF RELEVANT ACCOUNTING PRINCIPLES AND NOTES TO FINANCIAL STATEMENTS 1. Company Presentation Head-office and legal form; country Cetis, Graphic and Documentation Services, d.d., (Graphic and Documentation Services) is a company based at 24 Čopova, Celje, Slovenia. The corporation was entered in the Companies Register with the District Court Celje on 13 February 1996 under the entry no.

95/00923 and on 25 November 2003 under the entry no. 1/01476/00.

The share capital of the Company amounts to SIT 7,285,250,618.93 and is divided into 200,000 ordinary, no-par value registered shares issued as „dematerialized‟ securities and kept with the Central Securities Clearing Corporation (KDD) in Ljubljana. The Cetis shares (designated as CETG) are traded on the free market of the Ljubljana Stock Exchange (Ljubljanska borza).

Nature of business and major activities The Company‟s core business is providing comprehensive solutions in the field of communications through printed media and other forms of media. The corporate vision envisions Cetis as the leading company in Slovenia, with the right developmental, investing and marketing activities and the best qualified staff, looking ahead to increase its market share outside Slovenia as well. The Company offers a programme of diversified printed matter, such as security, variable and commercial printed matter, graphic design incl. accessory services, like personalisation of documents, the implementation and personalisation of micro chips or magnetic tapes, archiving, identity management and consultancy, project management and other services.

Factsheet of the Parent Company Cetis, d.d., holds 100% in a company established abroad. The financial statements of associated companies abroad subject to the Company‟s control are comprised in the Company‟s operation.

Human Resources

Podatki o zaposlenih - stanje Year 2004 2005 2006

Number of staff 451 430 419

49

Qualification Structure of employees – average values, compared with the past two years

II. III. IV. V. VI. VII. VIII.

Qualification level Level – trained at work Level – skilled workers Level – skilled workers Secondary level of education Post-Secondary level of education Higher level of education Master's Degree

2006 100 7 140 108 28

2005 108 7 145 108 28

2004 115 7 148 108 28

38 4

37 5

34 2

2. Groundwork for financial statements a) Conformity Declaration The Financial Statements for 2006 are based on the International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB), and on interpretations by the IFRS Interpretations Committee (IFRSIC) , as adopted by the European Union. This is the first year that the financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS 1).

The Company‟s Management Board confirmed the Statements on 5 March 2007. b) Basis for Measurement The 2006 financial statements are based on the procurement value, or assumed procurement values resp., except in the cases listed below in which the fair value has to be taken into account: Derivative financial instruments, Financial instruments at fair value through profit or loss, Financial assets available for sale.

The methods used in the measurement of fair value are described below. c) Functional and presentation currency The values in financial statements are expressed in Slovenian tolars (SIT), rounded off to one thousand tolars. d) Use of estimates and assessments The management has to indicate in its financial statements the estimates, assessments and presumptions relevant for the application of accounting principles or policies and the presented values of assets, liabilities, income and expenses. Actual results may differ from such estimates / assessments.

Estimates and presumptions need to be reviewed on a continual basis. Any corrections to the accounting estimates are recognized in the period for which the correction is made and for all subsequent years subject to the influence of such corrections.

50

The following Sections reveal information on significant estimates that entail uncertainties, and on the critical assessments made by the management in the process of implementing the accounting policies with a strong impact on the amounts shown in the financial statements: Section 13 - Use of tax losses, Sections 23 and 24 – provisions and contingent liabilities, Section 27 – Evaluation of financial instruments.

3. Significant accounting principles applied In the presentation and valuation of items, the accounting principles applied this year were also used for the year 2005 in view of the transition to IFRS. At the valuation of items in which the standards allow the Company to choose among various valuation methods, the Company has applied the principles from its Rules on Accounting and Finance that are described below.

Notes have to be provided for all major items whose value exceeds a certain percentage of the value of the assets or liabilities resp. The method of definition and relevance are shown in the Rules on accounting and finance.

The management has to give its assessment, the estimates and presumptions that are relevant for the application of accounting principles and presenting the values of assets and liabilities, as well as income and expenses.

The most relevant assessments relate to the classification of financial instruments held by the Company for trading and instruments held for sale. a) Foreign currency Assets and liabilities expressed in foreign currency are to be translated into the national currency at the time of their accrual and at the end of the accounting period, using the mean rate of the Banka Slovenije.

Cash assets and liabilities stated in foreign currency as at the Balance Sheet Date are translated into functional currency at the applicable exchange rate. The foreign exchange gains or losses are the differences between the amortised cost in the functional currency at the beginning of the period, adjusted (corrected) by the amount of effective interest and the payments effected during the accounting period, as well as the amortised cost expressed in a foreign currency and translated at the mean exchange rate at the end of the period. Non-monetary items and liabilities stated in foreign currency and measured at the fair value are converted into the functional currency at the exchange rate effective on the date on which the fair value was set. Foreign exchange gains and losses are recognised in the Profit or Loss Statement, except the gains and losses that occur in the translation of the capital instruments classified as the instruments available for sale or for a non-financial liability that is designated as the hedging instrument.

51

b) Financial instruments Non-derivative financial instruments include investments in capital, and debt securities, operating and other receivables, cash and cash equivalents, loans received and granted, and operating and other liabilities.

Initially, non-derivative instruments are recognised at their fair value increased by (instruments not recognised through profit or loss at their fair value) the costs directly attributable to the transaction except as stipulated below. After initial recognition, the non-derivative financial instruments are measured as explained below in greater detail.

A financial instrument is recognised if the company becomes a party to the contractual provisions of the instrument. The financial assets are derecognised after the Companyâ€&#x;s contractual rights to cash flow expire, or if the Company transfers a financial asset to another party, incl. the control or all risks and benefits of such assets. The purchases and sales made in a regular or usual way are accounted for as of the effective date of transaction, i.e. on the day on which a company undertakes to purchase or sell an asset.

Financial liabilities are derecognised when the Companyâ€&#x;s contractual obligations expire or terminate.

The Cash and Cash Equivalents Item comprises cash in hand and sight deposits.

Overdrafts of the current account at the bank that may be settled upon demand and form an integral part of cash management, are included among the elements of Cash and cash equivalents in the Cash Flow Statement.

For the accounting of financial revenues and expenses see Section 4. Net income (expenses) from financing.

Financial assets available for sale Investments in equity securities are classified as Financial assets available for sale. Upon initial recognition, these investments are measured at the fair value. The changes to the fair value are recognised directly in the capital. When an investment is derecognised, the related profit or loss is transferred to the Profit or Loss.

Investments at fair value through profit or loss An instrument is classified at its fair value through the Profit or Loss if it is held for trading or designated as such upon initial recognition. Financial instruments are classified at their fair value through the Profit or Loss provided that the Company is in a position to keep such investments, as well as to decide on the purchases and sales thereof at their fair value. After initial recognition, the pertaining operating costs of the transaction are recognised in the Profit or Loss at the time of accrual. Financial instruments stated at fair value through profit or loss are measured at their fair value, and the change to fair value is recognised through Profit or Loss.

Other Other non-derivative financial instruments are measured at the amortised cost by applying the effective interest method, reduced by the amount of loss owing to impairment.

52

Economic hedging In derivative instruments used for hedging the cash assets and liabilities in foreign currency, there is no economic hedging of the currency risks applied due to low risk of exposure. Changes of the fair value of derivative financial instruments are recognised in the Profit or Loss as a part of foreign exchange gains and losses.

Share capital Ordinary shares Additional costs, directly attributable to the issue of ordinary shares and stock options, are stated as the capital decrease.

Redemption of own shares and shareholdings Upon redemption of own shares or shareholdings stated as a portion of the share capital, the amount of the paid compensation, incl. the costs directly relating to the redemption is recognised as a change in equity. Redeemed shares or shareholdings are stated as own shares and deducted from the capital.

Dividends Dividends are recognised to the liabilities and presented upon the accrual of transaction.

c) Tangible fixed assets After the initial recognition, each tangible fixed asset is evaluated according to its procurement value. It consists of its purchase price and the costs directly attributable to the asset's qualifying for its intended use, in particular the cost of transport and accommodation.

The computer software programmes that significantly contribute to the functionality of the assets are to be capitalized as part of this equipment.

Parts of tangible fixed assets with different useful lives are accounted for as individual tangible fixed assets.

The difference between the net sales value and book value of a disposed tangible fixed asset is carried forward to the operating revenues from revaluation if the sales value exceeds the book value, or to the operating expenses from revaluation if the book value exceeds the sales value.

Subsequent cost incurred to the Tangible Fixed Assets The cost of replacement of a part of a tangible asset is recognised at the book value if it is probable that future economic benefits related to the part of such asset will flow to the Company and the procurement value can be reliably measured. All other costs (e.g. daily servicing) are recognised in the Profit or Loss as expenses as soon as they occur.

Depreciation The net amount of tangible depreciation/amortisation resp.

and

intangible

53

fixed

assets

decreases

by

A tangible fixed asset will start to be depreciated on the first day of the month following the effective day on which the asset was put into use for the relevant activity.

Depreciation rates are based on the estimated useful life of the assets, as follows: in years, min.

in years, max.

Land and buildings Plant and machinery - graphic equipment Laboratory equipment

7 3 3

40 19 10

Vehicles Telephone sets, telegraph switchboard

8 3

8 5

Furniture Typewriters, computer equipment Computer equipment for fire-safety Measuring and control appliances

5 3 3 4

6 8 3 6

Useful life is determined and examined in accordance with the Rules on Accounting and Finance. In the item Land and buildings are some parts, such as the hydraulic bridge plate, with a 14.2%-depreciation rate or useful life of 7 years.

Depreciation methods, useful life and the residual value are examined as of the reporting date in accordance with the Rules on Accounting and Finance.

d) Intangible fixed assets Research and development The consumption in research activities aiming to achieve new scientific and professional knowledge and understanding is recognised in the Profit or Loss as an expense at the date of accrual.

The development activities include the production plan or design of new or essentially improved products and procedures. An expense for development is recognised if it can be reliably measured, if the product or procedure is technically and operationally feasible, if there is a potential for future economic benefits, if the Company has adequate resources for the completion of development, and if it intends to use or sell such assets. The recognised value of such consumption comprises the cost of materials, direct labour and other costs which can be directly attributable to qualifying the asset for the intended use.

The remaining value of such consumption is always recognised in the Profit or Loss as an expense at the date of accrual.

The recognised consumption in development activities is presented at the procurement value decreased by the allowance for depreciation and accumulated loss owing to impairment.

54

Other Intangible Fixed Assets Other intangible fixed assets with a limited useful life are presented at the procurement value decreased by the allowance for depreciation and accumulated loss owing to impairment.

Subsequent Cost Subsequent expenses incurred with respect to intangible fixed assets are only capitalised if they should increase, at a later time, the future economic benefits arising from the resp. fixed assets. All other costs are recognised in the Profit or Loss as expenses as soon as they occur.

Depreciation Depreciation/amortisation is accounted on the straight-line depreciation basis using the estimates of useful life for intangible fixed assets and applies to the time at which the asset is available for use. Estimated useful life for the current and comparable year is as follows: Depreciation rates are based on the estimated useful life of the assets: in years, min.

Intangible fixed assets

3

in years, max.

10

e) Controlled companies and associated companies The Company evaluates its investments in equity of the controlled and associated companies according to the cost method of investment, which requires to recognise the income upon the transfer of participation in profit.

f) Inventories Upon initial recognition, a quantitative unit of a particular inventory of materials or merchandise is evaluated at the procurement value that comprises the purchase price, import dues and unrefundable levies imposed on the purchase. The value of inventories is based on the First-In-First-Out method (FIFO) of inventory evaluation.

Upon initial recognition, the quantitative unit of a product or work in progress is evaluated at the production cost. These comprise the direct cost of materials, direct labour costs, direct cost of services, direct cost of depreciation, and general production overheads. The general production overheads are the costs of materials, services, labour and depreciation, which are accounted for within the production process but cannot be directly related to the products, services or commodities produced.

Inventories are revalued owing to impairment in case their book value, including the value at the latest actual cost prices of the materials and merchandise, exceeds their market value. Work in progress is kept at the production cost excluding the external services, whereas the inventories of products are kept at the cost price (production cost). If these 55

prices exceed the market value, the Company has to apply impairment to work in progress and to finished products.

The net realisable (marketable) value is the estimated selling price to be achieved in ordinary business and reduced by the estimated cost of completion and the estimated costs to sell. g) Asset impairments Financial assets A financial asset is deemed to be impaired if there is impartial proof evidencing that one or several transactions brought about a decrease in the expected future cash flows from this asset.

A loss owing to impairment of a financial asset that is presented at the amortised cost is calculated as the difference between the net amount of the asset and the projected future cash flows, discounted at the historical effective interest rate. In a financial asset held for sale, the loss owing to impairment is calculated at its current fair value.

Important financial assets are assessed for impairment individually. The remaining financial assets are assessed for impairment as a group, taking into account their common characteristics relating to the exposure to risks.

All losses owing to impairment of assets are presented in the Profit or Loss. Any accumulated loss incurred to a financial asset held for sale that was recognised directly in the capital shall be transferred to the profit or loss statement.

A loss owing to impairment is eliminated if it can be impartially related to a transaction accrued after the recognition of impairment. In financial assets stated at the amortised value and financial assets held for sale, which are debt instruments, the elimination of the loss owing to impairment is presented in the Profit or Loss Statement. Financial assets held for sale which are equity securities are presented directly in the capital.

Non-Financial assets On each reporting date, the Company examines the residual amount of non-financial assets of the Group other than biological assets, investment property, inventories and deferred tax assets, in order to find out any indicators of impairment. If such an indicator exists, we estimate the recoverable amount of the asset. In goodwill impairment and the impairment of intangible assets with an indefinite useful life and not available for use yet, the assessment is made each time on the reporting date.

The impairment of an asset or an individual cash-generating unit is recognised when its book value exceeds the recoverable value of the asset/cash-generating unit. A cashgenerating unit is the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The impairment is presented in the Profit or Loss. The loss owing to impairment to be recognised in a cashgenerating unit is allocated as follows: The book value of the goodwill applicable to the cash-generating unit is reduced first, followed by other assets of the unit (or group of units) in proportion to the book value of each asset in the unit.

56

The recoverable amount of an asset or of a cash-generating unit is the higher of the two amounts: The value in use or the fair value decreased by the cost to sell, whichever is higher. In determining the value of an asset in use, the projected future cash flows are discounted to their present value by applying the discount rate before taxation that shows the current market estimates of the value of money and risk over time, typical of that particular asset.

The loss owing to the goodwill impairment may not be reversed. For other assets, the Company evaluates the losses owing to impairment incurred in the past periods as of the Balance Sheet Date, in order to find out whether the loss has been decreased or even eliminated. The loss owing to impairment is eliminated if the estimates underlying for the recoverable value of the group have changed. The loss is eliminated to the amount at which the increased book value of the asset does not exceed the book value which would have resulted after the deduction of the depreciation write-down/-off in case the loss owing to impairment had not been recognised in this asset in the preceding years. h) Long-term assets classified among the assets held for sale The long-term assets whose value is expected to be settled primarily by the sale and not by further use are classified among the assets held for sale. Directly before the asset is classified among the assets held for sale, a new measurement of assets (or integral parts or the group for disposal) is implemented in compliance with the accounting principles.

Accordingly, a long-term asset (or the group for disposal) is recognised at the lower of the two amounts: The book value or the fair value, decreased by the cost to sell. The impairment loss in the disposal is classified as follows: First, the book value of the goodwill is decreased, followed by other assets and liabilities in proportion to the book value of each asset in the unit, whereby the losses cannot be allocated to inventories, financial assets, deferred tax assets, assets earmarked for employee benefits, investment property and biological assets that still need to be measured in accordance with the accounting principles. Impairment losses incurred upon re-classification of assets to the assets held for sale and subsequent losses upon a subsequent measurement are presented in Profit or Loss Statement. Gains are not presented if the amount exceeds evtl. cumulative losses owing to impairment. i) Employee benefits Short-term employee benefits Obligations for short-term employee benefits are measured without discounting and are stated among expenses after the work relating to certain short-term benefit has been performed by the resp. employee. j) Provisions Provisions are recognised if the company has got legal or indirect obligations resulting from a past transaction, which can be reliably measured and it is probable that an outflow of resources embodying economic benefits will result from the settlement of the obligation.

The Company determines the provisions by discounting the projected future cash flows at a set interest rate before taxation that shows the existing market estimates of the value of money and risks, typical of that particular obligation.

57

Warranties for products and services The provision for warranties is shown at the sale of products or services for which the warranty was given. The provision is made on the basis of historical data on the warranty, taking into account all the potential outcomes and their probability.

Onerous contracts A provision for the costs of onerous contracts is recognised when the unavoidable costs involved in the fulfilment of the contractual obligations under this contract exceed the expected economic benefits for the Company resulting from such contract. The provisions are measured at the present value of the expected cost of termination, or of the estimated costs involved in maintaining such contractual relationship, whichever is lower. Before making the provision, the Company has to state any evtl. losses owing to impairment of the assets value concerned under this contract.

Provisions made for termination benefits and years-of-service rewards The Company is committed to the payment of years-of-service rewards and termination benefits payable to employees upon retirement, as provided by law, the Collective Agreement and internal implementing regulations as the case may be. There are no other obligations for pension.

Provisions are made to the amount of estimated future payments for termination benefits and years-of-service rewards and discounted as of the Balance Sheet Date. The calculation was made for each employee separately, comprising the termination benefits payable upon retirement and the costs of all expected years-of-service rewards until the employee retires. The applied discount rate is 4.5% p.a. and stands for the real interest rate; the calculation was prepared for the projected unit by a certified actuary. k) Revenues Revenues from the sale of products These revenues are recognised at the fair value of the payment received or the account receivable from the buyer resp., deducted by any return, discounts and rebates for resale and quantity-based discounts. The revenues are presented when the buyer has assumed all the significant forms of risks and benefits arising from the possession of such an asset, when there is a certainty for the collectability of the compensation or any costs related thereto, or the option to return the products, or when the Company discontinues to decide on the products sold.

The passage of risks and benefits depends on the provisions of the Sales Contract. Upon the sale of goods, the transfer is effected, as a rule, after the goods reach the buyerâ€&#x;s warehouse. However, in some international transactions the passage of risk (transfer) occurs at the time the goods are loaded on a means of transport.

Revenues from services supplied In the Profit or Loss, the revenues from services supplied are recognised as income on the basis of the stage of completion of work as of the reporting date. The stage of completion of work is assessed in a review of the work performed.

58

Revenues from rentals These revenues from investment property are recognised to the income earned by letting out property during the lease term. The incentives relating to the rental are recognised as an integral part of total revenues from rentals. l) Financial revenues and expenses Financial revenues comprise the interest revenues earned on investments, dividends, revenues from disposal of the financial assets available for sale, the change in fair value of financial assets at fair value through the profit or loss, exchange gains and profits resulting from hedging instruments that are recognised in the profit or loss. Interest revenues are measured at the time of their accrual, by applying the effective interest method. Revenues from dividend are recognised in the Profit or Loss on the day when the shareholder enforces his right to payment. In companies listed in a stock exchange, this is the cut-off date on which the right to current dividend ceases to be connected with the share, as a rule.

Financial expenses comprise the cost of lending, the dividends on preference shares that are stated among the liabilities, foreign exchange losses, the change in the fair value of financial assets at fair value through the Profit or Loss, the losses owing to impairment of financial assets and the losses from hedging instruments that are recognised in the Profit or Loss. The costs of lending are recognised at the effective interest method in the Profit or Loss. m) Tax on profit The tax on profit or loss for the financial year comprises the assessed and deferred tax.

The tax on profit is shown in the Profit or Loss, except in the part in which it relates to the items stated directly in the capital and is therefore recognised among the capital.

The assessed tax is the tax expected to be paid on the taxable income for the financial year, at the applicable tax rates that are in force or essentially binding on the reporting date, and evtl. adjustment of tax commitments in connection with the past financial years.

The deferred tax is presented according to the Balance Sheet liability method, taking into account the temporary differences between the book value of the assets and the liabilities for the needs of financial reporting, and the amounts for the tax reporting. The following temporary differences are not comprised: Goodwill when it does not stand for a deductible tax expense, initial recognition of assets or liabilities not affecting the accounting or taxable profit, and the differences relating to investments in controlled companies and jointly-controlled entities in the amount which will probably not be eliminated in the foreseeable future. The deferred tax is shown in the amount expected to be paid upon reversal of temporary differences, based on the applicable laws in force or essentially binding on the reporting date.

A deferred tax asset is recognised to the extent in which it is probable that the future taxable profit will be available, against which the deferred tax asset will be used in future.

Deferred tax assets are deducted by the amount for which a tax concession relating to the asset is no longer probable to be granted.

59

Additional tax on profit resulting from the distribution of dividends is shown when the liability for dividend payout is recognised. n) Net earning per share In ordinary shares, the Company is stating the basic earnings per share. The basic earnings per share are calculated as net income or loss appertaining to the holders of ordinary shares, divided by the weighted average number of ordinary shares in the year.

Reporting according to segments A segment is an identifiable component of an entity that supplies products or services (industry segment) or products and services in a specific economic environment (geographical segment) and is subject to risks and returns different from those in other segments. Reporting of the Group by segments is based on industry segments.

New standards and notes that are not effective yet Numerous new standards, amendments and notes for the year ended at 31 st December 2006 are not in force yet and were not taken into account in the preparation of financial standards:  IFRS 7 Financial instruments: Disclosures and Amendment to IAS 1 Presentation of financial statements: Disclosures on capital: The standard will require more comprehensive disclosures on the relevance of financial instruments for the financial standing of the Group and its operations, and the qualitative and quantitative disclosures on the nature and extent of particular types of risks. The IFRS 7 and the amended IAS 1 that will become binding on the Group preparing the financial statements for 2007, will require more comprehensive, additional disclosures on financial instruments and share capital of the Group.  IFRSIC 7 (IFRS Interpretations Committee), The use of Revaluation under IAS 29 Financial Reporting in Hyperinflationary Economies:This Note relates to the application of IAS 29 in the first year when a legal entity is aware of hyperinflation and in particular in the accounting of deferred taxes. We do not expect IFRSIC 7, which will be binding on the Group in the preparation of financial statements for 2007, to have any influence on consolidated financial statements.  IFRSIC 8 The Scope of IRRS 2: Payment in shares: This Note applies to payment transactions with shares in which the partial or full volume of goods or services cannot be precisely defined. The Group will have to apply the IFRSIC 8 for the next financial year (2007), and the Note shall apply retroactively.  The IFRSIC 9 Re-assessment of Embedded Derivative Financial Instruments: The Note requires a re-assessment whether an embedded derivative financial instrument has to be separated from the host contract if the contract was changed. We do not expect IFRSIC 9, which will be binding on the Company in the financial statements for 2007, to have any influence on consolidated financial statements.  IFRSIC 10 Interim Financial Reporting and Impairment forbids the reversal of losses owing to impairment that was recognised in the preceding interim term relating to goodwill, investment in capital instruments or financial assets stated at the procurement 60

value. The Company will have to apply the IFRSIC 10 for the presenting of goodwill, investment in capital instruments and financial assets stated at the procurement value in advance, commencing with the day when the Group has applied the measuring criteria under the IAS 36 and IAS 39 for the first time (i.e. 1 January 2004).

Disclosures to the Cash Flow Statement The Cash Flow Statement is drawn up according to the indirect method of reporting cash flow from the data from Balance Sheet of 31 Dec. 2006 and the Balance Sheet of 31 Dec. 2005, and from the Profit or Loss Statement for 2006, as well as from additional data required for the adjustment of inflows and outflows, and for the purpose of structuring the more relevant items.

DISCLOSURES OF ITEMS IN FINANCIAL STATEMENTS 1. Revenues (in thousand SIT) 2006 2005

Sales structure according to type Sale of products and services in domestic market Sale of products and services in foreign markets Sale of materials and merchandise in domestic market Sale of materials and merchandise in foreign market Total

Sales revenues by industry segments Security printed matter Commercial printed matter Other Total Net profit or loss – industry segment Security printed matter Commercial printed matter Other Total

4,206,133

4,168,046

1,862,564

1,895,892

296,537

239,668

102,551 6,467,785

101,774 6,405,380

2006 1,514,134 4,392,849 560,802 6,467,785 2006 -29,570 -85,791 -10,952 -126,313

in thousand SIT 2005 1,166,432 4,783,288 455,660 6,405,380 2005 -137,311 -563,085 -53,640 -754,036

'Other' in the Sales revenues comprises the revenues from the sale of materials and merchandize and fixed assets.

61

Year 2006 Balance Sheet Items – industry segments Asset Items Liabilities Investments Year 2005 Asset Items Liabilities Investments

in thousand SIT Security Commercial printed matter printed matter 2,799,718 8,122,888 1,094,240 3,174,746 62,930 182,581 2,102,448 841,807 77,245

8,622,231 3,452,288 316,786

Other 1,036,888 405,257 23,306

Total 11,959,494 4,674,243 268,817

820,890 328,679 30,160

11,545,569 4,622,774 424,191

2. Expenses (in thousand SIT) Cost as to natural type, changes in value of inventories Cost of merchandise and materials sold Cost of materials used, and services Labour cost Depreciation Other operating expenses Changes in inventories of finished products, work in progress and semi-manufactures Total (operating) expenses

2006 363,588 3,654,994 1,887,871 835,734 138,038

2005 324,286 3,775,462 1,944,443 963,590 216,696

-46,016 6,834,209

91,393 7,315,870

Labour cost

2006 1,290,628 167,657 95,379 334,207 1,887,871

Wages and salaries, gross Cost of pension insurance Other social security cost Other labour cost Total labour cost

(in thousand SIT) 2005 1,333,800 177,490 100,203 332,950 1,944,443

The wages and salaries costs are accounted as required by Collective Agreements, Internal rules on payroll and other receipts, the Decree on the costs recognised as deductible tax expenses, and individual service contracts. Other labour costs are all the remaining expenses for meals, travel, holiday allowance, termination benefits on retirement, and the tax on salaries paid.

In addition, the company allocated in the reporting year SIT 52,312,000 for additional pension insurance, together with the employees who have waived 1,615% of their gross

62

wage for the same purpose. The Company paid SIT 55,173,000 to this purpose in the preceding year, under the same terms.

The accounted tax on wages came to SIT 51,761,000 (in 2006) and was lower than a year ago (SIT 67,786,000).

3. Other operating revenues

Breakdown of Other Income Profit from the sale of fixed assets Reversal of impairment of tangible fixed assets Revenues from reversal of provisions Capitalised own products and/or services Elimination of revaluation of trade receivables and inventories Refunds for damages, subsidies and grants received Other Total

2006 6,138 19,353 90,512 63,308

(in thousand SIT) 2005 5,715 0 53,033 0

27,961 22,013 10,826 240,111

4,228 27,132 66,346 156,454

4. Net income (expenses) from financing (in thousand SIT) 2006 2005 28,374 12,244

Interest revenues Revenues from dividend and other participation in profit Foreign exchange gains Revenues from the sale of financial investments Other financial revenues - thereof, change in evaluation of investments under IFRS Total financing revenues

73,891 23 252,198 101,341 97,223 455,827

63,804 5,600 104,209 16,621 0 202,478

Interest expenses Foreign exchange losses Expenses from the sale of financial investments Other financial expenses Financial expenses owing to impairment Total costs from financing

116,728 3,617 483 2,391 1,533 124,752

43,857 9,413 43,762 4,505 41,306 142,843

Total Net income from financing

331,075

59,635

63

6. Income for Tax purposes (in thousand SIT) 2006 2005 23,206 42,428 23,206 42,428

Deferred tax Total

Effective rates for Corporate Income Tax (in thousand SIT) 2006 Total Profit or Loss before tax Tax effects: Tax accounted by applying the general tax rate Tax-exempt income Income increased by tax Non-deductible expenses (for tax purposes)

2006

2005

204,762

25,0%

51,191

-14,3% -29,348 0,0% 37,7%

2005 -694,401

25,0%

-173,600

0,5%

-3,812

-0,6%

4,512

77,278 -18,9%

131,527

0

Tax relief

-28,6% -58,606

0,0%

0

Tax Loss

-31,2% -63,876

0,0%

0

156

0,2%

-1,055

-11,3% -23,206

6,1%

-42,428

Other changes to Tax base Total taxes

0,1%

6. Disclosures of amounts for Auditors The total amount spent for auditing services came to SIT 2,315,000 (in 2006); other disclosures are not provided due to trivial amounts.

7. Land and buildings, plant and machinery In 2006, the Company invested in land, buildings, plant and equipment SIT 268,817,000.

The existence and amount of legal restrictions is included in the explanatory notes to Offbalance sheet assets.

At the year-end, the liabilities to suppliers for the purchase of intangible fixed assets were SIT 237,785,000.

64

Changes in Land and buildings, plant and equipment (in thousand SIT)

Buildings

Other Investments Advances Equipment equipment in progress given

286,071

3,275,657

9,010,442

6,316

194,983

206,702

Land

Total

Procurement value Balance as of 1 Jan 2005 Acquisitions in the financial year Acquisitions - adjustment Acquisitions of investments in progress Carry-forward from investments in progress

17,604

4,001

5,228

12,599,003

7,297

415,298

1,004

Disposals

1,004

226,102

11,140

424,191

424,191

-408,001

-408,001 8,522

245,764

Balance as of 31 Dec 2005

292,387

3,470,640

8,992,046

6,464

20,191

4,003

12,785,731

Balance as of 1 Jan 2006 Matching after Opening Balance Acquisitions in the financial year Acquisitions of investments in progress Carry-forward from investments in progress

292,387

3,470,640

8,992,046

6,464

20,191

4,003

12,785,731

394

569

10,458

255,246

Disposals Balance as of 31 Dec 2006

80 151

265,855 268,817

268,817

-265,855

-265,855

354,513 292,387

1,043

4,003

3,481,492

8,893,348

6,615

1,551,330

5,409,202

11,094

23,233

358,516 12,697,075

Allowances for Balance as of 1 Jan 2005 Balances for surplus Depreciation

93,192

Disposals

6,971,626

1,004

1,004

811,069

904,261

183,380

11,094

194,474

Balance as of 31 Dec 2005

1,644,522

6,037,895

7,682,417

Balance as of 1 Jan 2006

1,644,522

6,037,895

7,682,417

96,550

694,794

791,344

310,885

310,885

1,741,072

6,421,804

8,162,876

Depreciation Disposals Balance as of 31 Dec 2006

The net amount Balance as of 1 Jan 2005

286,071

1,724,327

3,601,240

6,510

4,001

5,228

5,627,377

Balance as of 31 Dec 2005

292,387

1,826,118

2,954,151

6,464

20,191

4,003

5,103,314

Balance as of 1 Jan 2006

292,387

1,826,118

2,954,151

6,464

20,191

4,003

5,103,314

Balance as of 31 Dec 2006

292,387

1,740,420

2,471,544

6,615

23,233

65

4,534,199

Disposals made in 2006 comprise the sale of economically and technically obsolete, but still functional machinery.

Mortgages entered in the Land Register to secure the liabilities for loans received came to SIT 2,481,386,000 and the pledged plant and equipment amounted to SIT 2,262,232,000 (thereof, the remaining debt is only SIT 2,803,126,000); the lien and guarantees received amount to SIT 489,426,000.

8. Intangible fixed assets The long-term industrial property rights stand primarily for the purchased computer software for the renovation of the business information system. The long-term deferred development costs are recognised costs for projects that prove to be feasible for the project completion and eligible for the use or sale. The purpose is to complete the project and sell or use it in view of the probability of the economic benefits and the capability of a reliable measurement of the costs attributable to the resp. intangible asset.

In 2006, the Company invested SIT 333,898,000 in deferred costs and long-term property rights. The deferred development costs are recorded for the Passport Project.

66

Changes in intangible fixed assets (in thousand SIT) Long-term deferred costs

Long-term industrial property rights

Intangible fixed assets in manufacture

Total

Procurement value Balance as of 1 Jan 2005 Acquisitions in the financial year Acquisitions of investments in progress Carry-forward from investments in progress Disposals

35,366

322,557

0

13,436

357,923 13,436

14,107

14,107

-13,436

-13,436

7,050

2,611

9,661

Balance as of 31 Dec 2005

28,316

333,382

671

362,369

Balance as of 1 Jan 2005 Acquisitions in the financial year Acquisitions of investments in progress Carry-forward from investments in progress

28,316

333,382

671

362,369

44,404

289,494

Balance as of 31 Dec 2006

72,720

622,876

Balance as of 1 Jan 2006

7,050

Depreciation

9,429

Disposals

333,898 333,227

333,227

-333,898

-333,898

0

695,596

244,998

0

252,048

49,900

0

59,329

7,050

2,611

0

9,661

Balance as of 31 Dec 2005

9,429

292,287

0

301,716

Balance as of 1 Jan 2006

9,429

292,287

0

301,716

Depreciation

9,430

34,961

0

44,391

18,859

327,248

0

346,107

Balance as of 1 Jan 2005

28,316

77,559

0

105,875

Balance as of 31 Dec 2005

18,887

41,095

671

60,653

Balance as of 1 Jan 2006

18,887

41,095

671

60,653

Balance as of 31 Dec 2006

53,861

295,628

0

349,489

Allowances for

Balance as of 31 Dec 2006

The net amount

67

9. Investments in group enterprises

Structure according to type Cetis Zagreb Cetis Skopje Cetis Tirana Total Among the Group enterprises are:

2006 405,142 0 1,255 406,397

(in thousand SIT) 2005 405,142 44,269 1,255 450,666

CETIS – ZG, Poduzeče za trgovinu i usluge, d.o.o., Industrijska 11, Sveta Nedelja, Croatia.

The participation is measured at the procurement value.

In 2005, an allowance was made for the company Cetis Print, d.o.o.el., Skopje, which is not stated in the balance. The disposal of Cetis, d.o.o.el, Skopje, and Cetis Print, d.o.o.el., Skopje, was completed in July 2006.

The company is preparing a consolidated financial statement for the abovementioned company Cetis-ZG, d.o.o., because it is 100% owned by the Parent Company. The subsidiary is reporting to the Parent Company on a monthly basis; the latter is performing analyses every three months and an internal audit at least once per year. The subsidiary is subject to auditing according to national laws.

The participation held in the company CETIS–TIRANA, Sh.p.k.,R.r. Deshmoret e 4, Shkurtit. P.7, Tirana, Albania, is measured at the procurement value.

The financial statements of this company, also fully owned by Cetis, d.d., are not consolidated. This company is only an intermediary in the acquisition of business and has a status of small enterprise not liable for the preparation of accounting statements under national law.

Changes in investments in group enterprises

(in thousand SIT) Procurement value Balance 1,Jan 2006 Sale Balance 31 Dec 2006

495,627 -89,230

Allowance (impairment) 44,961 -44,961

406,397

Net value 450,666 -44,269 406,397

68

10. Investments in associate enterprises The associated companies include: Druckman Hungary, in which the Company owns 33% and for which the allowance for the entire investment has been made because the associated company has been out of operation for several years and is not shown in the changes of investments.

La Societe Nationale des Loteries Sportives, BP 2150, Libreville, Gabon. The participation is measured at the procurement value.

KIG KGA, proizvodnja, trgovina, in탑eniring, d.o.o., Zagorica 18, 1292 Ig, Slovenia.

The participation is measured at the procurement value.

Lotaria Nacionale SH.A Rruga Kavajes, Porta Kry Esore, Misto Mame, Tirana, Albania. The participation is measured at the procurement value.

Structure according to type La Societe Sationale des Loteries Sportives (SNLS), Libreville,Gabon - 31% owned KIG KGA, proizvodnja, trgovina, in탑eniring, d,o,o, - 50% owned Lotaria Nacionale SH,A Rruga Kavajes, Porta Kry Esore, Misto Mame, Tirana, Albania, 46,6% owned Total

(in thousand SIT) 2006 2005 11,327 4,117

11,327

1,812 17,256

11,327

Changes in investments in associate enterprises

Balance as of 1 Jan 2006 Purchase Balance as of 31,Dec 2006

(in thousand SIT) Procurement value Net value 11,327 11,327 5,929 5,929 17,256 17,256

69

11. Investments available for sale (in thousand SIT) 2006 2005 3,345,434 3,071,702

Structure according to years Investments available for sale Changes in investments

(in thousand SIT) Procurement value Balance as of 1 Jan 2005 Purchase Sale Change in Fair Value Balance as of 1 Jan 2006 Purchase Sale Change in Fair Value

1,652,129 1,551,908

Balance as of 31 Dec 2006

3,345,434

-91,226 3,112,811 592,936 533,698 173,385

Allowance (Impairment)

Net value 1,652,129 1,551,908

41,109 41,109 41,109

-132,335 3,071,702 592,936 492,589 173,385 3,345,434

12. Loans granted (in thousand SIT) 2006 2005 312,342 158,438

Structure according to type Loans granted

This item comprises the loans granted to the associated company, employees for the repurchase and development of residential facilities, and funds invested in long-term bonds issued by a bank.

Changes in loans granted (in thousand SIT)

Balance as of 1 Jan 2005

Increases Repayments Transfer to short-term loans Exchange differences Balance as of 1 Jan 2006 Increases Repayments

Procurement value 181,899

Allowance (impairment)

Net value 181,899

2,751

2,751

20,028 -682 158,438 184,632 22,202

20,028 -682 158,438 184,632 22,202

70

Transfer to short-term loans Exchange differences Balance as of 31 Dec 2006

8,640 114 312,342

8,640 114 312,342

13. Deferred tax assets and liabilities for tax

Investments Receivables Inventories Provisions for termination pay Other provisions Tax Loss Total

(in thousand SIT) Receivable Receivables s Liabilities Liabilities Receivables - Liabilities 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2006 2005 2006 2005 2006 2005 4,943 15,869 58,636 29,196 -53,693 -13,327 11,601 13,378 11,601 13,378 6,067 7,247 6,067 7,247 58,888 4,148 53,298 138,945

80,795 8,062 125,351

58,636

29,196

58,888 4,148 53,298 80,309

80,795 8,062 96,155

For the deferred tax account, the Company has applied the Balance Sheet Liability Method and included the temporary differences between the tax base of a particular asset or liability and its book value in the Balance Sheet. The 23% tax rate was used except in tax loss, where the Company applied the tax rate ranging from 20% to 23% in view of utilising the tax loss over the coming years.

The tax base for deferred tax liabilities is the surplus from the revaluation of investments available for sale and measured at the fair value through profit or loss.

In deferred tax assets, the tax base equals to the provisions made for years-of-service rewards and termination benefits on retirement, tax loss and temporary differences in the tax on profit account in investments, receivables, inventories and other provisions that will be recognised as tax deductible in subsequent periods.

The Company has recognised deferred tax assets for the tax loss based on the estimate that in the coming years taxable profits will be available, against which the deferred tax asset will be used in future.

In the years when the Company will be utilising the tax loss, the decrease in deferred tax assets will mean an adequate decrease of profit.

The balance of investment tax concessions amounts to SIT 146,460,000 and an unused tax loss of SIT 247,900,000.

Changes in temporary differences in 2005 (in thousand SIT) 71

Investments Receivables Inventories Provisions for termination pay, other Tax Loss Total

Recognised under 1 Jan revenues / Recognised in 2005 expenses capital -49,763 18,440 17,996 13,378 7,247 85,494

-4,699 8,062 42,428

35,731

17,996

31 Dec 2005 -13,327 13,378 7,247 80,795 8,062 96,155

Changes in temporary differences in 2006 (in thousand SIT)

Investments Receivables Inventories Provisions for termination pay, other Other provisions Tax Loss Total

Recognised 1 Jan revenues / 2006 expenses -13,327 13,378 7,247 80,795

under Recognised in capital -1,315 -39,052 -1,776 -1,180 -21,907 4,148 45,236 23,206

8,062 96,155

72

-39,052

31 Dec 2006 -53,694 11,602 6,067 58,888 4,148 53,298 80,309

14. Inventories

Structure according to type Materials Work in process Products Merchandise Total

2006 480,623 214,425 126,242 2,003 823,293

(in thousand SIT) 2005 444,894 166,938 127,712 14,372 753,916

For the year 2006, the Company has written off the assets that were no longer usable, amounting to SIT 38,929,000.

The surplus recorded came to SIT 3,660,000, primarily in materials, and deficit recorded came to SIT 512,000 in materials.

A material inventory is such that exceeds in its value 30% of all inventories, provided that such inventory stands for at least 3% of the value of all assets.

Allowance for inventory is determined according to inventory type and movement. No new allowances had to be made other than those made in the past periods. In examining the inventories in the stores accommodating items under complaint, the inventories of materials, products and merchandise that did not show any movement for more than 12 months, the Company followed the same principles as in the preceding years.

The increase in inventories of materials and work in progress can be attributed to bigger purchases of materials and to commercial decisions relating to sales.

15. Short-term financial investments at fair value (in thousand SIT) 2006 2005 440,690 462,322 440,690 462,322

Structure according to years Short-term investments Total

All the short-term investments directly affecting the profit or loss are securities (shares) and investments in mutual funds dealing with securities listed or traded in organized markets.

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16. Short-term loans (in thousand SIT) 2006 2005 8,639 20,027 8,639 20,027

Structure according to years Current portion of long-term loans Total

17. Receivables due from tax on profit (in thousand SIT) 2006 2005 67,465 67,465

Structure according to years Receivable due from tax on profit Total

As a result of the loss in 2005 and overpaid advances for tax, the Company received a refund of SIT 67,465,000 in 2006.

18. Operating and other receivables

Structure according to type Short-term trade receivables Short-term operating receivables due from group members Short-term operating receivables due from associates Short-term operating receivables due from others Short-term advances given Total

(in thousand SIT) 2006 2005 1,023,473 981,934 67,877 96,471 214,393 5,775 1,407,989

107,575 34,707 101,900 2,057 1,228,173

After the initial recognition, receivables of all types are stated in the amounts as taken from the underlying documents, under the assumption of being settled in due time. The original (historical) receivables may be increased at a later time or - irrespective of the payment received or any other method of settlement – reduced by any amount agreed in the contract.

The short-term deferred expenses for royalties, registrations, security and other, and short-term accrued revenues are recorded under other receivables on the ground of transition to another accounting term.

Advances given for any item receivable shall be shown in the Balance Sheet with the item they relate to. Advances given for tangible fixed assets are stated in the same group as

74

tangible fixed assets, whereas the advances given for current assets are shown under Inventories.

Any receivables in which the settlement within due date or in full amount is questionable are regarded as doubtful receivables; after a court action was initiated, they are regarded as disputable receivables.

The allowance for receivables is based on the assessment of the collectability of each particular receivable in question. The basis for the allowance are receivables outstanding for 90 days after due date. The average allowance for trade receivables amounts to 0.8% of net sales revenues and rose by 0.1% over the year 2005. Of all short-term trade receivables: -

The amount due for payment is SIT 189,537,000,

-

The amount not due yet is SIT 896,721,000.

When the writeoff of the receivable is based on a document, it is debited to the allowance made for receivables.

All receivables expressed in foreign currency are to be translated into the national currency at the mean rate of the Banka Slovenije.

A material receivable is such that exceeds in its value 30% of all receivables, provided that such account receivable stands for at least 3 % of the value of all assets as of the Balance Sheet Date.

The Company is selling most of its products and services on an open account, and the receivables are not secured.

Short-term operating receivables due from others include the contract-based financing of direct liabilities of the associated company, amounting to SIT 162,610,000.

19. Cash and cash equivalents

Structure according to type Cash in banks, cheques and cash in hand Deposits in banks Total

2006 37,821 137,000 174,821

(in thousand SIT) 2005 22,216 10,000 32,216

20. Capital Total capital consists of issued capital stock, the paid-in capital surplus, legal and statutory reserves, retained net profit or loss, own shares as a capital decrease, and the reserve for fair value. The register of KDD (Clearing Depository Company (KDD)) holds 200,000 nopar value shares.

In 2006, the Company did not acquire own shares. As of 31 st December 2006, the Company owns 201 shares designated CETG.

75

The reserve for fair value was increased due to the growth of the value of investments available for sale on the stock exchange.

Addendum to the Statement of Changes in Equity

ITEM NET PROFIT OR LOSS FOR THE FINANCIAL YEAR NET LOSS OF THE FINANCIAL YEAR NET LOSS CARRIED FORWARD REVERSAL OF CAPITAL RESERVES REVERSAL OF REVENUE RESERVES (1 to 3) 1. Reversal of legal and statutory reserves 2. Reversal of other revenue reserves F. INCREASE IN REVENUE RESERVES (1 to 2) 1. Allocation to reserves for own shares 2. Allocation to statutory reserves H. ACCUMULATED PROFIT/LOSS (A+B+C+D+E-F), A. B. C. D. E.

(in thousand SIT) 2005

2006 227,968

-651,973 -197,473 61,937 396,547 207,729 188,818 4,139 4,139 30.495

-197,628

Accumulated profit amounted to SIT 30,494,854.66. It was calculated as the difference between net profit of 2006 in the amount of SIT 227,968 thousand and covered retained net loss from 2005 in the amount of SIT 197,473 thousand (effects of the use of actuarial calculations and provisions for employee jubilee awards and severance pay upon the transition to IFRS).

The General Meeting of Shareholders shall decide on the use of the accumulated profit for 2006 based on a proposed resolution by the Management and Supervisory Boards. The following allocation of the accumulated profit for 2006 in the amount of SIT 30,494,854.66 shall be proposed to the General Meeting of Shareholders of the Company for approval: - director's fees to the Supervisory Board in the net amount of SIT 3,522,708 (EUR 14,700), - with the remainder of the accumulated profit allocated to retained earnings.

21. Net earning (loss) per share

Net profit (loss) in thousand SIT Weighted average number of ordinary shares Net profit (loss) per share in SIT

2006 227,968 199,799 1,140,99

2005 -651,973 199,816 -3,262,87

The net profit (loss) per share is calculated as a ratio between basic net income or loss and the denominator standing for a weighted average number of shares.

22. Loans received Loans received comprise long-term loans and short-term loans, with the current portion of the long-term loans.

76

Long-term loans received (in thousand SIT) 2006 2005 1,902,793 2,100,163

Structure according to years Loans from banks

The biggest loan is the loan raised to finance the long-term financial investment amounting to EUR 6,400,000 with a term of payment of 7 years. Čisti dobiček (izguba na delnico) je izračunan tako, da se osnovni čisti dobiček oziroma izguba deli z imenovalcem, ki ga predstavlja tehtano poprečno število delnic.

Short-term loans received

Structure according to type Current portion of long-term loans from banks, due in one year Short-term loans from banks Short-term loans received from others Total

2006

(in thousand SIT) 2005

537,506 350,017 10,000 897,523

281,049 350,006 159,000 790,055

Guarantees granted The guarantees granted are shown in Off-balance sheet assets/ liabilities.

Repayment of loans (in thousand SIT)

Structure according to type Short-term loans up to one year Long-term loans taken for the term 3 - 7 years Total

2006 Total repayment s 922,583 373,428 1,296,011

Interest 2006 24,525 92,203 116,728

The principal 2006 898,058 281,225 1,179,283 in thousand SIT

2005 Total repayment s 624,654

Structure according to type Short-term loans up to one year 77

Interest 2005 12,654

The principal 2005 612,000

Long-term loans taken for the term 3 - 7 years Total

529,509 1,154,163

31,203 43,857

498,306 1,110,306

23. Provisions

Structure according to type For seller's warranties For legal action For other purposes For years-of-service awards and termination pay Total

2006 30,111 94,763 2980 256,035 383,889

(in thousand SIT) 2005 32,354 97,852 323,181 453,387

The Company has examined the provisions made, taken into account the corrections and decreased the overall amount of provisions for long-term deferred expenses and the provisions for long-term accrued expenses.

The bases for the provisions are the contracts, legal bases and expert opinions.

The provisions for guarantees given upon the sale of certain products and services were made on the basis of risk assessment for complaints, in percentage of the revenues. The proportional amount of provisions made for the reporting year was reversed.

Provisions made for termination benefits and years-of-service rewards The layoffs resulted in a decrease of provisions amounting to SIT 67,146,000 on the basis of the calculation for each employee by applying the projected unit prepared by the certified actuary.

24. Operating and other liabilities

Structure according to type Short-term operating liabilities to suppliers Short-term operating liabilities arising from advances Short-term liabilities to employees Short-term liabilities to state and other institutions Other short-term liabilities Total

2006 999,583 175,659 163,862 64,714 27,584 1,431,402

(in thousand SIT) 2005 962,194 55,948 114,584 48,492 68,755 1,249,973

Other liabilities comprise the accrued costs and short-term deferred revenues.

The bases are the original (historical) documents that define an event in terms of time and substance.

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25. Fair Value Overview of assets and liabilities at fair and book value

(in thousand SIT)

Explanatory Note Investments available for sale Loans granted Operating and other receivables Investments at fair value through profit or loss Short-term loans Cash and cash equivalents Provisions Loans received - long-term Loans received - short-term Operating and other liabilities Total

Book value Fair value Book value Fair value as at 31 as at 31 as at 31 as at 31 Dec 2006 Dec 2006 Dec 2005 Dec 2005 3,345,434 3,345,434 3,071,702 3,071,702 312,342 312,342 158,438 158,438 1,407,989

1,407,989

1,228,173

1,228,173

440,690 440,690 462,322 462,322 8,639 8,639 20,027 20,027 174,821 174,821 32,216 32,216 -383,889 -383,889 -453,387 -453,387 -1,902,792 -1,902,792 -2,100,163 -2,100,163 -897,523 -897,523 -790,055 -790,055 -1,431,402 -1,431,402 -1,249,973 -1,249,973 1,074,309 1,074,309 379,300 379,300

The investments available for sale are evaluated at the fair value and depend on the recognition of the investment after the trading date.

Investments at fair value through profit or loss are evaluated at the stock exchange price.

The loans granted and received are evaluated by the calculation (translation) of the amortised cost using the effective interest method that does not differ from the contractual interest rate. Accordingly, the contractual interest rate is used in the calculations.

In operating and other receivables, the impairment to fair value is taken in view of collectability. The receivables are not discounted in view of short-term nature.

The same applies to operating and other liabilities that are not discounted owing to their short-term nature.

The provisions are based on the calculations for individual types, as indicated in Section i) and Note 23.

26. Financial instruments - risk management

79

Exposure to Risk, and Risk Management We may put it that currency risks were excluded at the time of stable exchange rate of the euro since almost all foreign transactions were made in EUR. The Company is aware of the importance attributable to regular control and management of financial risks to which the Company is exposed in the markets, and views it as a relevant precondition for successful operations and achieving of strategic goals. The interest rate risks were notable in the reporting year (a general growth of interest rates).

The analysis of these risks has resulted in the assessment that the interest rate risk is higher also on the ground of the company having raised a new debt, or the guarantees issued. The Company envisions these risks to become higher also as a result of the operations of the Parent Company and subsidiaries.

All the long-term debts are taken in euros or subject to the currency clause. Interest rates are based on the market principles governing the price of money in the European banking market. The interest rate risks have not been hedged so far, as the Company views the interest rate fixations offered to be above the variable rates. Lately, these have come close to the ceiling of the acceptable by the 2006 year-end.

The fixation of the euro exchange rates was visible throughout 2006 and affected the current financial policy and financial risk management in that field.

-

-

-

-

-

We were able to manage Credit risks already during the procedures of accepting customers' orders, taking into account their credit rating, requesting additional security for our receivables and by limiting our exposure to individual customers.

On top of that, a systematic and active collection process was applied. Despite a slight increase in outstanding receivables, we view the exposure of Cetis to credit risks as moderate.

Currency risks were present primarily in our business relations with East European countries with soft currencies; our products and services sold to these customers are invoiced in euro. In all markets, the Company has reduced the currency risks with adequate balancing of receivables and liabilities accounted in euro, and by complying with a stable exchange rate policy. It is estimated that the exposure of Cetis to currency risk is moderate.

The interest rate risks rose due to increased loan volume and the growth of interest rates. We estimate that the interest rate level for all the long-term loans raised, although the contractually agreed fluctuation and the given maturity are still acceptable. However, adequate hedging will become indispensable. We estimate that the exposure of the company to interest rate risks was higher than a year ago.

Property loss and related risks were systematically, by analytical approach, assigned on insurance companies, thanks to new assistance service.

The short-term solvency risk in Cetis is relatively low thanks to effective management with cash, credit lines for cash flow balancing, satisfactory financial flexibility and good access to financial sources. The Company has succeeded in reducing the long-term solvency risk as a result of more efficient operations compared to those a year ago (2005).

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Financial instruments

Total 31 Dec 2006

Effective Interest Rate Loans granted to associated companies Loans granted to others

chang, 5% - 5,5 %, linked to EURIBOR growth

Loans granted for repurchase of housing

6% - 7% point value under the Housing Act

Loans granted for housing development

7%

Bonds

Up to 6 months

From 6 to 12 months

Year 2006, in thousand SIT from 1 to 2 years from 2 to 5 years

164,633

164,633

451

5,2%

451

13,664

3,392

3,401

13,806

4,720

4,840

119,788

Current portion of long-term loans 0,2% - 3,6%

174,821

Secured bank loans received - long-term

EURIBOR +0,5% to 1,05%

8,639 174,821

-1,902,793

Secured bank loans - current portion of long-term loans Secured bank loans received - shortterm

EURIBOR +0,80% to 0,85%

Short-term loans received

3,23% - 3,63%

-1,902,793

-537,506

-537,506

-350,017

-350,017

-10,000

Total

-2,304,514

4,246 119,788

8,639

Cash and cash equivalents

6,871

-10,000 174,821

-880,772

8,692

-1,607,255

Year 2005, in thousand SIT Effective Interest Rate Loans granted to others

Total 31 Dec 2005

Up to 6 months

From 6 to 12 months

Loans granted for repurchase of housing

6% Point value accord, to Housing Act

1,591 17,745

3,671

Loans granted for housing development

7%

19,314

4,942

Bonds

5,2%

14,372

20,027

Secured bank loans received - long-term

0,2 % - 3,2% EURIBOR +0,5% to 1,05%

Secured bank loans - current portion of long-term loans Secured bank loans received - shortterm

-281,049

-281,049

EURIBOR +0,80% to 0,85%

-350,006

-350,006

Unsecured, short-term loans received

3,62% - 3,7%

-159,000

-159,000

Total

14,074 119,788

20,027 32,216

32,216

-2,100,163

2,679,537

81

from 2 to 5 years

1,591

119,788

Current portion of long-term loans Cash and cash equivalents

from 1 to 2 years

-2,100,163

32,216

-761,415

1,591

-1,951,929

Explanatory notes on reporting under the IRFS Disclosures in connection with IRFS 1 relate to: Comparable information, Explanation on the transition to IFRS, Harmonization - first-time adoption of IFRS in financial statements, The use of fair value, counting as the procurement value.

Under the first-time adoption of IFRS, the Opening Balance Sheet was drawn up as at 1 January 2005 and the Closing Balance Sheet as at 31 December 2005, as required by the IFRS 1.

Preparation of Opening Balance Sheet and Adjustments to IFRS 1. The Company recognised all the assets and debts under the IFRS principles. A deferred tax asset was recognised, arising from temporary differences in the valuation of investments, receivables, inventories, and part of tax loss.

2. The Company recognised new liabilities for the provisions owing to years-of-service rewards and termination benefits. The provisions were made to the amount of estimated future payments for years-of-service rewards and termination benefits, discounted as of the Balance Sheet Date. The calculation was made for each employee separately, comprising the termination benefits payable upon retirement and the costs of all expected years-of-service rewards until the employee retires.

The applied discount rate was 4.5% p.a. A certified actuary prepared the calculation using a projected-unit basis.

3. The re-classification of assets and liabilities followed that are considered as different types of assets, debts and elements of capital under the Slovenian accounting standards (SRS) and IFRS. 4. Own shares are presented as a deductible item of the capital.

5. The general equity revaluation adjustment was re-allocated to the capital reserves.

6. Other revenue reserves were allocated to retained earnings.

7. The deferred costs/expenses and accrued revenues are now an item of Other receivables, and the accrued costs/expenses and deferred revenues become Other liabilities.

8. Cash deposits held with banks up to three months are re-classified to the item of Cash and cash equivalents.

9. Advances for inventories are re-classified to Other receivables.

10. The valuation of financial instruments was done on the fair-value basis. The fair value of financial investments available for sale is equal to their published market price offering as of the Balance Sheet Date.

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11. The recognised differences arising from the adjusted items of financial investments that are in the Opening Balance Sheet classified as available for sale are recognised in a separate item of capital.

12.The investments in controlled and associated enterprises are valued at cost (the procurement value).

The total differences between the IFRS and SRS values amount to SIT 266,508,000.

The impact of changes at the time of transition to IFRS as of 01 Jan 2005 is shown in the Change in the financial position (balance) in the Balance Sheet.

After that date, the influence is seen on the financial performance in the Profit or Loss Statement for 2005, and onwards by the deferred tax account.

83

BALANCE SHEET as at 1.1. 2005 and 31.12.2005 – SRS to IFRS Adjustment (in thousand SIT) 31 Dec 2005

1 Jan 2005 SRS

Difference

IFRS

SRS

Difference

IFRS

ASSETS 1. Real property, plant and equipment

5,627,378

5,627,378

5,103,314

5,103,314

2. Intangible fixed assets

105,875

105,875

60,653

60,653

4. Investments in Group members

102,664

86,871

487,258

-36,592

450,666

11,239

87

11,326

3,417,239

-345,537

3,071,702

6,231

-6,231

-15,793

5. Investments in associate enterprises 6. Investments available for sale Investments in own shares 7. Loans granted

1,993,925

-341,796

2,249

-2,249

181,899

1,652,129

181,899

158,438

85,495

85,495

44,556

80,795

125,351

8,013,990

-274,343

7,739,647

9,288,928

-307,478

8,981,450

938,829

-5,007

933,822

755,973

-2,057

753,916

540,851

540,851

462,322

462,322

397,861

-361,000

36,861

30,027

-10,000

20,027

1,306,613

41,410

1,348,023

1,186,799

41,374

1,228,173

6. Cash and cash equivalents

25,037

361,000

386,037

22,216

10,000

32,216

8. Deferred costs and accrued revenues

36,403

-36,403

39,317

-39,317

2,704,743

540,851

2,101,797

462,322

8. Deferred receivables from taxes SA, Total long-term assets 1. Inventories 2. Short-term financial investments at fair value through profit or loss 3. Short-term loans 4. Receivables due from tax on profit 5. Operating and other receivables

SB, Total short-term assets S, Total ASSETS

158,438

67,465

10,718,733

3,245,594

266,508 10,985,241 11,390,725

67,465

2,564,119

154,844 11,545,569

CAPITAL AND LIABILITIES A. CAPITAL 1. Issued capital

2,400,000

2. Paid-in capital surplus

592,787

3. Legal and Statutory reserves

617,340

Other reserves

268,396

4. Own shares 5. Retained earnings

Total capital

2,400,000

4,341,759

530,850

617,340

409,611

-268,396

6,231

-2,249

-2,249

290,132

60,435

350,567 84,977

3,748,972

84,977 3,748,972

7,917,627

-125,233

6. Reserve for fair value 7. General equity revaluation adjustment

3,748,972

2,400,000

24,664

2,400,000 3,748,972

4,279,822 409,611

-6,231 -6,231

-6,231

-216,061

-191,397

30,990

30,990

3,748,972

-3,748,972

7,792,394

7,120,328

-197,533

493,702

2,100,163

498,942

130,206

323,181 29,196

29,196

352,377

2,582,746

6,922,795

B. LIABILITIES 1. Loans received

493,702

4. Provisions

156,965

341,977 49,764

49,764

650,667

391,741

1,042,408

2,230,369

714,418

790,055

1,436,021

1,204,849

5. Deferred liabilities for tax a) Long-Term Liabilities 2. Loans received 3. Operating and other liabilities

714,418 1,403,649

32,372 84

2,100,163 453,387

790,055 45,124

1,249,973

6. Accrued costs and deferred revenues

32,372

b) Short-term liabilities

2,150,439

TOTAL LIABILITIES

2,801,106

KO, Total CAPITAL AND LIABILITIES

10,718,733

-32,372

391,741

45,124 2,150,439

2,040,028

3,192,847

4,270,397

266,508 10,985,241 11,390,725

-45,124 2,040,028 352,377

154,844 11,545,569

INCOME STATEMENT FOR THE YEAR 2006 – SRS to IFRS Adjustment (in thousand SIT) SRS 1. REVENUES 2. Cost of sold products

6,379,105

Differenc e 26,275

IFRS 6,405,380

-324,286

-324,286

3. Manufacturing costs

-4,913,296

-4,913,296

4. Cost of sold products and manufacturing costs

-5,237,582

-5,237,582

A. GROSS PROFIT

1,141,523

26,275

1,167,798

137,570

18,884

156,454

-1,132,873

-26,275

-1,159,148

5. Other (operating) revenues 6. Selling costs 7. General and administrative costs 8. Other (operating) expenses = total (5+6+7+8) B. OPERATING PROFIT OR LOSS EXCL, COST OF FINANCING 9. Financing revenues 10. Financing expenses C. Net income from financing D. Profit or Loss before tax 12.b Deferred Tax Profit/Loss (from operating) of financial year

-787,395

-787,395

-131,745

-131,745

-1,914,443

-7,391

-1,921,834

-772,920

18,884

-754,036

193,828

8,650

202,478

-117,795

-25,048

-142,843

76,033

-16,398

59,635

-696,887

2,486

-694,401

44,555

-2,127

42,428

-652,332

359

-651,973

The total differences between the IFRS and SRS values amount to SIT 359,000, or better by 0.05%.

85

4,622,774

The differences in revenues amounting to SIT 26,275 relate to the use and formation of the provisions for sellerâ€&#x;s warranties. In the past, SRS required to present the seller's warranties as Decreased revenues.

Other operating revenues result from the decreased provision for years-of-service rewards and termination benefits.

The selling costs are attributed to the formation of provisions.

The financing revenues reveal the effect of investment revaluation.

The financing expenses show the effect of investment revaluation at fair value to cost price (procurement value), arising from foreign exchange differences in investments.

The accounted lower deferred tax asset amounting to SIT 2,127,000 goes back to the change in provisions for termination pay and years-of-service rewards, and decreased fair value of investments through profit or loss.

Other disclosures Disclosures according to groups of persons: Members of the Management Board, Supervisory Board and staff employed under individual service contracts.

The total receipts received by the groups of persons for the provision of their functions, or performing of tasks assigned: - Management Board

SIT 23,579,000

- Other staff employed under individual service contract (10 persons) - Supervisory Board

133,243,000,

SIT 3,277,000.

Balance of liabilities for dedicated loans granted by the Company to persons from these groups, at the 2006 year-end: SIT 2,140,000.

The amount of repaid loans in 2006 came to SIT 912,000.

86

5.FINANCIAL REPORT OF THE CETIS GROUP Auditor’s report

87

CONSOLIDATED INCOME STATEMENT in thousand SIT Explanatory Note

1

REVENUES

2

Cost of sold products

3

Manufacturing costs

4

Cost of sold products and manufacturing costs

A.

1

2

GROSS PROFIT

2006

7.670.128

2005

7.425.873

-871.074

-784.014

-4.775.110

-5.077.917

-5.646.184

-5.861.931

2.023.944

1.563.942

5

Other operating revenues

3

298.129

186.197

6

Selling costs

2

-1.458.777

-1.440.808

7

General and administrative costs

2

-817.075

-886.969

8

Other operating expenses

2

= Other revenues, expenses and costs (5+6+7+8) B. 9

OPERATING PROFIT OR LOSS EXCL. COST OF FINANCING

-106.827

-148.574

-2.084.550

-2.290.154

-60.606

-726.212

Financing revenues

4

443.803

209.425

10

Financing costs

4

-160.480

-157.445

C.

NET FINANCING COSTS

283.323

51.980

D.

PROFIT OR LOSS BEFORE TAX

222.717

-674.232

a) Tax expenses

5

-5.427

-4.234

b) Deferred tax

5

22.054

43.034

12

Tax expenses

5

16.627

38.800

E.

PROFIT AFTER TAX (NET INCOME)

239.344

-635.432

1.197,92

-3.180,08

Net profit (loss) per share (in SIT)

20

88

CONSOLIDATED BALANCE SHEET AS OF 31.12.2006

31.12.2006

in thousand SIT 31.12.2005

7 8 9 10 11 12

5.174.084 358.497 17.256 3.346.689 312.342 139.250 9.348.118

6.442.661 62.259 11.239 3.073.665 158.438 97.612 9.845.874

13 14 15 16 17 18

897.448 440.690 8.639 1.604.417 253.256 3.204.450

871.866 462.322 32.374 67.465 1.593.826 102.135 3.129.988

12.552.568

12.975.862

2.400.000 4.279.822 409.611 75.896 -6.231 165.323 7.324.421

2.400.000 4.279.822 409.611 -165.183 -6.231 32.102 6.950.121

2.207.186 385.215 58.636 2.651.037

3.040.828 467.405 3.508.233

960.060 1.617.050 2.577.110 5.228.147

900.647 1.616.861 2.517.508 6.025.741

12.552.568

12.975.862

5.645.903

5.817.767

Explanatory Note 1 2 5 6 7 8 SA. 1 2 3 4 5 6

ASSETS Land and buildings, plant and machinery Intangible fixed assets Investments in associate enterprises Investments available for sale Loans granted Deferred receivables from taxes Total Long-term assets

SB.

Inventories Short-term financial investments at fair value Short-term loans Receivables due from tax on profit Operating and other receivables Cash and cash equivalents Total short-term assets

S.

TOTAL ASSETS CAPITAL AND LIABILITIES 1 2 3 4 5 6

KO.A

Issued capital stock Capital reserves Reserves (Legal and Statutory) RETAINED EARNINGS Own shares Reserve for fair value Total capital

1 4 5 KO.B.a)

Loans received Provisions Deferred liabilities for taxes Total Long-term Liabilities

21 22 12

2 3 KO.B.b) KO.B

Loans received Operating and other liabilities Total Short-term Liabilities TOTAL LIABILITIES

21 23

KO.

TOTAL CAPITAL AND LIABILITIES

19

Off-balance sheet assets (liabilities)

89

CONSOLIDATED CASH FLOW STATEMENT

2006 CASH FLOWS FROM OPERATING ACTIVITIES Profit or Loss for the financial year Adjustments: Depreciation of real property, plant and equipment Amortisation of intangible fixed assets (Elimination of) loss owing to impairment Foreign exchange losses Revenues from investing activities Financing expenses Revenues from real property, plant and equipment Revenues from reversal of long-term provisions OPERATING PROFIT BEFORE CHANGES TO NET CURRENT ASSETS AND PROVISIONS Change in operating and other receivables Change in inventories Change in operating and other liabilities Change in provisions and employee benefits CASH GENERATED IN OPERATING ACTIVITIES Interest paid Tax on profit paid

in thousand SIT 2005

239.345 742.665 904.655 45.754 18.954 7.954 -252.198 122.401 -6.138 -98.717 982.010

-635.432 1.081.821 982.638 59.329 72.028 6.186 -95.561 132.323 -5.715 -69.407 446.389

-187.298 -22.306 -49.206 16.528 -242.282 -19.848

-387.070 81.116 326.967 34.463 55.476 -57.679 -184.065

NET CASH FLOWS FROM OPERATING ACTIVITIES

719.880

260.121

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the sale of real property, plant and equipment Proceeds from the sale of investments Interest received Dividends received Expenses for acquisition of real property, plant & equipment Expenses for other investments Expenses for acquisition of intangible fixed assets NET CASH FLOWS FROM OPERATING ACTIVITIES

64.280 252.198 20.429 73.892 389.413 -253.245 -341.992 204.975

38.089 95.561 26.260 63.804 -1.822.086 -1.383.290 -15.713 -2.997.375

622 1.089.506 -1.863.735 -127 -773.734

-4.139 -159.500 3.843.218 -1.116.049 -155.990 2.407.540

151.121 102.135 253.256

-329.714 431.849 102.135

CASH FLOWS FROM FINANCING ACTIVITIES Redemption of own shares and shareholdings Changes in equity Raising loans Repayment of loans Dividends paid NET CASH FLOWS FROM FINANCING ACTIVITIES Net increase in cash and cash equivalent Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD

90

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Issued capital stock

Balance as of 1 Jan 2005 Change to Accounting principles Cetis,d.d.

Loss 2005 Loss cover Dividend and remuneration payout Decrease of Fair Value Acquisition of own shares Balance as of 31 December 2005 Profit 2006 Exchange differences CETIS ZG, IPI, BS Dividends for own shares Increase in Fair Value Balance as of 31 December 2006

2.400.000

Capital reserves

Legal and Statutory reserves

4.341.759

617.340

-61.937

-207.729

Own shares

-2.249

RETAINED EARNINGS

295.770 64.313

Reserve for fair value 149.291 -64.313

-635.432 269.666 -159.500

2.400.000

4.279.822

409.611

-165.183

-159.500

32.102

239.344 1.580

4.279.822

409.611

-6.231

75.896

133.221 165.323

The Management Board of the Cetis, d.d., confirms the Financial Statements and Notes thereto for the year ended at 31st December 2006.

DECLARATION ON MANAGEMENT RESPONSIBILITY The Management Board is accountable for preparing the financial statements so as to reflect the true and fair presentation of the Companyâ€&#x;s operations for the reporting year.

The Management Board confirms that the resp. Accounting guidelines and policies were consistently used, and the estimates were prepared to the purpose and under the principle of prudence. It further confirms the compliance of the Companyâ€&#x;s financial statements with the International Financial Reporting Standards (IFRS).

The going concern assumption was underlying for these financial statements.

91

-52.876 -3.982 6.950.121 239.344 1.580

155 2.400.000

7.801.911

-635.432

-52.876 -3.982 -6.231

in thousand SIT Total capital

155 133.221 7.324.421

The Management Board is also responsible for properly kept accounting, timely adoption of the measures to secure the Companyâ€&#x;s assets, and prevention and detecting any fraud and other illegal practices.

March 2007 Simona PotoÄ?nik, MA Managing Director

92

SUMMARY OF RELEVANT ACCOUNTING PRINCIPLES AND NOTES TO FINANCIAL STATEMENTS 1. Presenting the Group The Group provides comprehensive solutions in the field of communications through printed media and other forms of media. The corporate vision of the Group is to be the market leader in Slovenia, with the right developmental, investing and marketing activities and the best qualified staff, looking ahead to increase their market share outside Slovenia as well. The Group offers a programme of diversified printed matter, such as security, variable and commercial printed matter; graphic design incl. accessory services, like personalisation of documents, the implementation and personalisation of micro chips or magnetic tapes, archiving, identity management and consultancy, project management and other services.

Apart from the Parent Company Cetis, d.d., the Group also comprises the company CetisZG, d.o.o., in which the Parent Company holds 100% share. The participations in CETISSK, dooel, Skopje and CETIS Print, dooel, Skopje were sold in July 2006.

Human Resources Year 2004 2005 2006

THE CETIS GROUP 478 552 441

Cetis, d.d., Celje 451 430 419

Cetis-ZG, d.o.o.

7 22 22

Cetis-SK, dooel, Skopje 20 20

Cetis-Print, dooel, Skopje 80

Qualification Structure of employees – average values, compared with the past two years

II. III. IV. V. VI. VII. VIII.

Qualification level Level – trained at work Level – skilled workers Level – skilled workers Secondary level of education Post-Secondary level of education Higher level of education Master's Degree

2006 100 7 140 125 28

2005 122 19 162 168 31

2004 115 7 156 122 29

42 5

52 6

38 5

2. Groundwork for financial statements a) Conformity Declaration The Financial Statements for 2006 are based on the International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB), and on interpretations by the IFRS Interpretations Committee (IFRSIC), as adopted by the European Union.

93

The Management Board confirmed the financial statements on 5 March 2007. b) Basis for measurement The 2006 financial statements are based on the procurement value, or assumed procurement values resp., except in the cases listed below in which the fair value has to be taken into account: Derivative financial instruments, Financial instruments at fair value through profit or loss, Financial assets available for sale.

The methods used in the measurement of fair value are described below. c) Functional and presentation currency The values in financial statements are expressed in Slovenian tolars (SIT), rounded off to one thousand tolars. d) Use of estimates and assessments The management has to indicate in the financial statements their estimates, assessments and presumptions relevant for the application of accounting principles or policies and the presented values of assets, liabilities, income and expenses. Actual results may differ from such estimates.

Estimates and presumptions need to be reviewed on a continual basis. Any corrections to the accounting estimates are recognized in the period for which the correction is made and for all subsequent years subject to the influence of such corrections.

The following Sections reveal the information on significant estimates that entail uncertainties, and on the critical assessments made by the management in the process of implementing the accounting policies with a strong impact on the amounts shown in the financial statements: Section 12 - Use of tax losses, Sections 22 and 23 – provisions and contingent liabilities, Section 25 – Evaluation of financial instruments.

3. Significant accounting principles applied In the presentation and valuation of items, the accounting principles applied this year were also used for the year 2005 in view of the transition to IFRS. At the valuation of items in which the standards allow the company to choose among various valuation methods, the Group has applied the principles from its Rules on Accounting and Finance that are described below.

Notes have to be provided for all major items whose value exceeds a certain percentage of the value of the assets or liabilities resp. The methods of definition and relevance are shown in the Rules on Accounting and Finance.

The management has to give its assessment, the estimates and presumptions that are relevant for the application of accounting principles and presenting the values of assets and liabilities, as well as income and expenses.

94

The most relevant assessments relate to the classification of financial instruments held by the Group for trading and instruments held for sale.

In 2006, the Group reclassified certain financial investments from the category of financial assets held for sale into the category of financial assets at fair value through profit or loss.

In accordance with IAS 8, the adjustment was made to the initial opening balance of the comparable period (NOTE 10, 14, 19). The effect of the adjustment is recorded in the reserve for fair value as at 1 Jan. 2005, while the effect of the changed accounting principle reflects in the Profit of Loss Statements for 2005 and 2006.

The comparable information is harmonised with the presentation of information in the current year. Whenever it was necessary, the comparable data have been harmonised for compliance with the presentation of information in the current year.

4. Groundwork for consolidation Controlled Companies (Subsidiaries) Controlled companies (also referred to as the „subsidiaries‟) are enterprises controlled by the Group. The term „control‟ stands for the decision-making capacity on the enterprise‟s financial and operational policies to generate economic benefits from its operation, existing on the part of the Group. Financial statements of subsidiaries are included in the consolidated financial statements with effect from the date when the control commences until the date of cessation thereof.

Associated companies Associated companies are companies in which the Group has a significant, but not prevailing influence on the financial and business policy of such company. Consolidated financial statements comprise the share of the Group in the total recognised profit and loss of the associated companies, calculated according to the equity method from the date on which the significant influence commences until the date of cessation of such influence. If the share of the Group in the losses of an associated company is higher than the shareholding of the Group in such associated company, the book value of the Group‟s share is reduced to zero, and the Group ceases to recognise its share in further losses, although only to the extent for which the Group has assumed legal or constructive (indirect) obligations, or has made payments on behalf of the associated company.

Transactions exempt from consolidation Exempt from the consolidated financial statements are balances, unrealised gains and losses, or revenues and expenses resp. arising from transactions within the Group.

Unrealized gains from transactions with associated companies are excluded only to the amount of the Group‟s shareholding in the enterprise. Unrealised losses are excluded in the same way as gains, provided that there is no proof on impairment. a) Foreign currency Assets and liabilities expressed in foreign currency are to be translated into the national currency at the time of their accrual and at the end of the accounting period, using the mean rate of the Banka Slovenije.

Cash assets and liabilities stated in foreign currency as at the Balance Sheet Date are translated into functional currency at the applicable exchange rate. The foreign exchange gains or losses are the differences between the amortised cost in the functional currency 95

at the beginning of the period, adjusted by the amount of effective interest and the payments effected during the accounting period, as well as the amortised cost expressed in a foreign currency and translated at the mean exchange rate at the end of the period.

Non-monetary items and liabilities stated in foreign currency and measured at the fair value are converted into the functional currency at the exchange rate effective on the date on which the fair value has been set. Foreign exchange gains and losses are recognised in the Profit or Loss Statement, except the gains and losses that occur in the translation of the capital instruments classified as the instruments available for sale or for a nonfinancial liability that is designated as the hedging instrument. b) Financial instruments Non-derivative financial instruments include investments in capital, and debt securities, operating and other receivables, cash and cash equivalents, loans received and granted, and operating and other liabilities.

Initially, non-derivative instruments are recognised at their fair value increased by (instruments not recognised through profit or loss at their fair value) the costs directly attributable to the transaction except as stipulated below. After initial recognition, the non-derivative financial instruments are measured as explained below in greater detail.

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. The financial assets are derecognised after the Companyâ€&#x;s contractual rights to cash flow expire, or if the Group transfers a financial asset to another party, incl. the control, or all risks and benefits of such assets. The purchases and sales made in a regular or usual way are accounted for as of the effective date of transaction, i.e. on the day on which the Group undertakes to purchase or sell an asset. Financial liabilities are derecognised when the Companyâ€&#x;s contractual obligations expire or terminate.

The Cash and Cash Equivalents Item comprises cash in hand and sight deposits.

Overdrafts of the current account at the bank that may be settled upon demand and form an integral part of cash management, are included among the elements of Cash and cash equivalents in the Cash Flow Statement.

For the accounting of financial revenues and expenses see Section 4. Net income (expenses) from financing.

Financial assets available for sale Investments in equity securities are classified as Financial assets available for sale. Upon initial recognition, these investments are measured at the fair value. The changes to the fair value are recognised directly in the capital. When an investment is derecognised, the related profit or loss is transferred to the Profit or Loss.

Investments at fair value through profit or loss An instrument is classified at its fair value through the Profit or Loss if it is held for trading or designated as such upon initial recognition. Financial instruments are classified at their fair value through the Profit or Loss provided that the Group is in a position to keep such investments, as well as to decide on the purchases and sales thereof at their fair value.

After initial recognition, the pertaining operating costs of the transaction are recognised in the Profit or Loss at the time of accrual. Financial instruments stated at fair value through

96

Profit or Loss are measured at their fair value, and the change to fair value is recognised through profit or loss.

Other Other non-derivative financial instruments are measured at the amortised cost by applying the effective interest method, reduced by the amount of loss owing to impairment.

Economic hedge In derivative instruments used for hedging the cash assets and liabilities in foreign currency, there is no economic hedging of the currency risks applied due to very low risk exposure. Changes of the fair value of derivative financial instruments are recognised in the Profit or Loss as a part of foreign exchange gains and losses.

Share capital Ordinary shares Additional costs, directly attributable to the issue of ordinary shares and stock options are stated as the capital decrease.

Redemption of own shares and shareholdings Upon redemption of own shares or shareholdings stated as a portion of the share capital, the amount of the paid compensation, incl. the costs directly relating to the redemption is recognised as a change in equity. Redeemed shares or shareholdings are stated as own shares and deducted from the capital.

Dividends Dividends are recognised to the liabilities and presented upon the accrual of transaction. c) Tangible fixed assets After the initial recognition, each tangible fixed asset is evaluated according to its procurement value. It consists of its purchase price and the costs directly attributable to the asset's qualifying for its intended use, in particular the cost of transport and accommodation.

The computer software programmes that significantly contribute to the functionality of the assets are to be capitalized as part of this equipment.

Parts of tangible fixed assets with different useful lives are accounted for as individual tangible fixed assets.

The difference between the net sales value and book value of a disposed tangible fixed asset is carried forward to the operating revenues from revaluation if the sales value exceeds the book value, or to the operating expenses from revaluation if the book value exceeds the sales value.

Subsequent cost incurred to the Tangible Fixed Assets The cost of replacement of a part of a tangible asset is recognised at the book value if it is probable that future economic benefits related to the part of such asset will flow to the 97

Company and the procurement value can be reliably measured. All other costs (e.g. daily servicing) are recognised in the Profit or Loss as expenses as soon as they occur.

Amortisation/Depreciation The net amount of tangible depreciation/amortisation resp.

and

intangible

fixed

assets

decreases

by

A tangible fixed asset will start to be depreciated on the first day of the month following the effective day on which the asset was put into use for the relevant activity.

Depreciation rates are based on the estimated useful life of the assets: in years, min.

in years, max.

Land and buildings Plant and machinery - graphic equipment Laboratory equipment

7 3 3

40 19 10

Vehicles Telephone sets, telegraph switchboard

8 3

8 5

Furniture Typewriters, computer equipment Computer equipment for fire-safety Measuring and control appliances

5 3 3 4

6 8 3 6

d) Intangible fixed assets Research and development The consumption in research activities aiming to achieve new scientific and professional knowledge and understanding is recognised in the Profit or Loss as an expense at the date of accrual.

The development activities include the production plan or design of new or essentially improved products and procedures. An expense for development is recognised if it can be reliably measured, if the product or procedure is technically and operationally feasible, if there is a potential for future economic benefits, if the Group has adequate resources for the completion of development, and if it intends to use or sell such assets. The recognised value of such consumption comprises the cost of materials, direct labour and other costs which can be directly attributable to qualifying the asset for the intended use. The remaining value of such consumption is always recognised in the Profit or Loss as an expense at the date of accrual.

The recognised consumption in development activities is presented at the procurement value decreased by the allowance for depreciation and accumulated loss owing to impairment.

Other Intangible Fixed Assets

98

Other intangible fixed assets with a limited useful life are presented at the procurement value decreased by the allowance for depreciation and accumulated loss owing to impairment.

Subsequent Cost Subsequent expenses incurred with respect to intangible fixed assets are only capitalised if they should increase, at a later time, the future economic benefits arising from the resp. fixed assets. All other costs are recognised in the Profit or Loss as expenses as soon as they occur.

Amortisation/Depreciation Depreciation/amortisation is accounted on the straight-line depreciation basis using the estimates of useful life for intangible fixed assets and applies to the time at which the asset is available for use. Estimated useful life for the current and comparable year is as follows: Depreciation rates are based on the estimated useful life of the assets: in years, min.

Intangible fixed assets

3

in years, max.

10

e) Inventories Upon initial recognition, a quantitative unit of a particular inventory of materials or merchandise is evaluated at the procurement value that comprises the purchase price, import dues and unrefundable levies imposed on the purchase. The value of inventories is based on the First-In-First-Out method (FIFO) of inventory evaluation.

Upon initial recognition, the quantitative unit of a product or work in progress is evaluated at the production cost. These comprise the direct cost of materials, direct labour costs, direct cost of services, direct cost of depreciation, and general production overheads. The general production overheads are the costs of materials, services, labour and depreciation, which are accounted for within the production process but cannot be directly related to the products, services or commodities produced.

Inventories are revalued owing to impairment in case their book value, including the value at the latest actual cost prices of the materials and merchandise, exceeds their market value. Work in progress is kept at the production cost excluding the external services, whereas the inventories of products are kept at the cost price (production cost). If these prices exceed the market value, the Group has to apply impairment to work in progress and to finished products.

The net realisable (marketable) value is the estimated selling price to be achieved in ordinary business and reduced by the estimated cost of completion and the estimated costs to sell.

99

f) Asset impairment Financial assets A financial asset is deemed to be impaired if there is impartial proof evidencing that one or several events/transactions brought about a decrease in the expected future cash flows from this asset.

A loss owing to impairment of a financial asset that is presented at the amortised cost is calculated as the difference between the net amount of the asset and the projected future cash flows, discounted at the historical effective interest rate. In a financial asset held for sale, the loss owing to impairment is calculated at its current fair value.

Important financial assets are assessed for impairment individually. The remaining financial assets are assessed for impairment as a group, taking into account their common characteristics relating to the exposure to risks.

All losses owing to impairment of assets are presented in the Profit or Loss. Any accumulated loss incurred to a financial asset held for sale that was recognised directly in the capital shall be transferred to the Profit or Loss Statement.

A loss owing to impairment is eliminated if it can be impartially related to an transaction accrued after the recognition of impairment. In financial assets stated at the amortised value and financial assets held for sale, which are debt instruments, the elimination of the loss owing to impairment is presented in the Profit or Loss Statement. Financial assets held for sale which are equity securities are presented directly in the capital.

Non-Financial assets On each reporting date, the Group examines the residual amount of its non-financial assets other than biological assets, investment property, inventories and deferred tax assets, in order to find out any indicators of impairment. If such an indicator exists, the recoverable amount of the asset has to be estimated. In goodwill impairment and the impairment of intangible assets with an indefinite useful life and not available for use yet, the assessment is made each time on the reporting date.

The impairment of an asset or an individual cash-generating unit is recognised when its book value exceeds the recoverable value of the asset/cash-generating unit. A cashgenerating unit is the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The impairment is presented in the Profit or Loss. The loss owing to impairment to be recognised in a cashgenerating unit is allocated as follows: The book value of the goodwill applicable to the cash-generating unit is reduced first, followed by other assets of the unit (or group of units) in proportion to the book value of each asset in the unit.

The recoverable amount of an asset or of a cash-generating unit is the higher of the two amounts: The value in use or the fair value decreased by the cost to sell, whichever is higher. In determining the value of an asset in use, the projected future cash flows are discounted to their present value by applying the discount rate before taxation that shows the current market estimates of the value of money and risk over time, typical of that particular asset.

100

The loss owing to the goodwill impairment may not be reversed. For other assets, the Group evaluates the losses owing to impairment incurred in the past periods as of the Balance Sheet Date, in order to find out whether the loss has been decreased or even eliminated. The loss owing to impairment is eliminated if the estimates underlying for the recoverable value of the group have changed. The loss is eliminated to the amount at which the increased book value of the asset does not exceed the book value which would have resulted after the deduction of the depreciation write-down/-off in case the loss owing to impairment had not been recognised in this asset in the preceding years. g) Long-term assets classified among the assets held for sale The long-term assets whose value is expected to be settled primarily by the sale and not by further use, are classified among the assets held for sale. In accordance with the accounting guidelines, another measurement of these assets (or parts thereof, or the group for disposal) has to be taken directly before classifying these assets among the assets held for sale. Accordingly, a long-term asset (or the group for disposal) is recognised at the lower of the two amounts: the book value or fair value, decreased by the cost to sell. The impairment loss in the disposal is classified as follows: First, the book value of the goodwill is decreased, followed by other assets and liabilities in proportion to the book value of each asset in the unit, whereby the losses cannot be allocated to inventories, financial assets, deferred tax assets, assets earmarked for employee benefits, investment property and biological assets that still need to be measured in accordance with the accounting principles. Impairment losses incurred upon re-classification of assets to the assets held for sale and subsequent losses upon a subsequent measurement are presented in the Profit or Loss. Gains are not presented if the amount exceeds evtl. cumulative losses owing to impairment. h) Employee benefits Short-term employee benefits Obligations for short-term employee benefits are measured without discounting and are stated among expenses after the work relating to certain short-term benefit has been performed by the resp. employee. i) Provisions Provisions are recognised if the Group has got legal or constructive obligations resulting from a past event/transaction, which can be reliably measured and it is probable that an outflow of resources embodying economic benefits will result from the settlement of the obligation. The Group determines the provisions by discounting the projected future cash flows at a set interest rate before taxation that shows the existing market estimates of the value of money and risks, typical of that particular obligation.

Warranties for products and services The provision for warranties is shown at the sale of products or services for which the warranty was given. The provision is made on the basis of historical data on the warranty, taking into account all the potential outcomes and their probability.

101

Onerous contracts A provision for the costs of onerous contracts is recognised when the unavoidable costs involved in the fulfilment of the contractual obligations under this contract exceed the expected economic benefits for the Group resulting from such contract. The provisions are measured at the present value of the expected cost of termination or of the estimated costs involved in maintaining such contractual relationship, whichever is lower. Before making the provision, the Group has to state any evtl. losses owing to impairment of the assets value concerned under this contract.

Provisions made for termination benefits and years-of-service rewards The Group is committed to pay years-of-service rewards and termination benefits payable to employees upon retirement, as provided by law, the Collective Agreement and internal implementing regulations as the case may be. There are no other obligations for pension.

Provisions are made to the amount of estimated future payments for termination benefits and years-of-service rewards and discounted as of the Balance Sheet Date. The calculation was made for each employee separately, comprising the termination benefits payable upon retirement and the costs of all expected years-of-service rewards until the employee retires. The applied discount rate is 4.5% p.a. and stands for the real interest rate; the calculation was prepared for the projected unit by a certified actuary. j) Revenues Revenues from the sale of products These revenues are recognised at the fair value of the payment received or the account receivable from the buyer resp., deducted by any return, discounts and rebates for resale and quantity-based discounts. The revenues are presented when the buyer has assumed all the significant forms of risks and benefits arising from the possession of such an asset, when there is a certainty for the collectability of the compensation or any costs related thereto, or the option to return the products, or when the Group no longer decides on the products sold.

The passage of risks and benefits depends on the provisions of the sales contract. Upon the sale of goods, the transfer is effected, as a rule, after the goods reach the buyerâ€&#x;s warehouse, however, in some international transactions the passage of risk (transfer) occurs at the time the goods are loaded on a means of transport.

Revenues from services supplied In the Profit or Loss, the revenues from services supplied are recognised as income on the basis of the stage of completion of work as of the reporting date. The stage of completion of work is assessed in a review of the work performed.

Revenues from rentals These revenues from investment property are recognised to the income earned by letting out property during the lease term. The incentives relating to the rental are recognised as an integral part of total revenues from rentals.

102

k) Financial revenues and expenses Financial revenues comprise the interest revenues earned on investments, dividend, revenues from disposal of the financial assets available for sale, the change in fair value of financial assets at fair value through the Profit or Loss, exchange gains and profits resulting from hedging instruments that are recognised in the profit or loss. Interest revenues are measured at the time of their accrual, by applying the effective interest method. Revenues from dividend are recognised in the Profit or Loss on the day when the shareholder enforces his right to payment: In companies listed in a stock exchange, this is the cut-off date on which the right to current dividend ceases to be connected with the share, as a rule.

Financial expenses comprise the cost of lending, the dividends on preference shares that are stated among the liabilities, foreign exchange losses, the change in the fair value of financial assets at fair value through the Profit or Loss, the losses owing to impairment of financial assets and the losses from hedging instruments that are recognised in the Profit or Loss. The costs of lending are recognised at the effective interest method in the Profit or Loss. l) Tax on profit The tax on profit or loss for the financial year comprises the assessed and deferred tax.

The tax on profit is shown in the Profit or Loss, except in the part in which it relates to the items stated directly in the capital and is therefore recognised among the capital.

The assessed tax is the tax expected to be paid on the taxable income for the financial year, at the applicable tax rates that are in force, or essentially binding on the reporting date, and evtl. adjustment of tax commitments in connection with the past financial years.

The deferred tax is presented at the Balance Sheet liability method, taking into account the temporary differences between the book value of the assets and liabilities for the needs of financial reporting, and the amounts for the tax reporting. The following temporary differences are not comprised: Goodwill when it does not stand for a deductible tax expense, initial recognition of assets or liabilities not affecting the accounting or taxable profit, and the differences relating to investments in controlled companies and jointly-controlled entities in the amount which will probably not be eliminated in the foreseeable future. The deferred tax is shown in the amount expected to be paid upon reversal of temporary differences, based on the applicable laws in force or essentially binding on the reporting date.

A deferred tax asset is recognised to the extent in which it is probable that the future taxable profit will be available, against which the deferred tax asset will be used in future.

Deferred tax assets are deducted by the amount for which a tax concession relating to the asset is no longer probable to be granted.

Additional tax on profit resulting from the distribution of dividend is shown when the liability for dividend payout is recognised.

103

m) Net earning per share In ordinary shares, the Group is stating the basic earnings per share. The basic earnings per share are calculated as net income or loss appertaining to the holders of ordinary shares, divided by the weighted average number of ordinary shares in the year.

Reporting according to segments A segment is an identifiable component of an entity that supplies products or services (industry segment), or products and services in a specific economic environment (geographical segment) and is subject to risks and returns different from those in other segments. Reporting of the Group by segments is based on industry segments.

New standards and notes that are not effective yet Numerous new standards, amendments and notes for the year ended at 31 st December 2006 are not in force yet and were not taken into account in the preparation of financial standards:  IFRS 7 Financial Instruments: Disclosures and Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures: The standard will require more comprehensive disclosures on the significance of financial instruments for the financial position and performance of the Group, and the qualitative and quantitative disclosures on the nature and extent of particular types of risks. The IFRS 7 and the amended IAS 1 that will become binding on the Group preparing the financial statements for 2007 will require more comprehensive, additional disclosures on financial instruments and share capital of the Group.  IFRSIC 7: The use of Revaluation under IAS 29 Financial Reporting in Hyperinflationary Economies: This interpretation relates to the application of IAS 29 in the first year when an entity is aware of hyperinflation and in particular in the accounting of deferred taxes. We do not expect the requirements by IFRSIC 7 that will be binding on the Group in the preparation of financial statements for 2007 to have any influence on consolidated financial statements.  IFRSIC 8 The Scope of IFRS 2: Share-based payment: This interpretation applies to payment transactions with shares in which the partial or full volume of goods or services cannot be precisely defined. The Group will have to apply the IFRSIC 8 for the next financial year (2007), and the interpretation shall apply retroactively.  The IFRSIC 9 Reassessment of Embedded Derivatives: The interpretation requires a reassessment whether an embedded derivative has to be separated from the host contract if the contract was changed. We do not expect the requirements by IFRSIC 9 that will be binding on the Group‟s financial statements for 2007 to have any influence on consolidated financial statements.  IFRSIC 10 Interim Financial Reporting and Impairment forbids the reversal of losses owing to impairment that was recognised in the preceding interim term relating to goodwill, investment in capital instruments or financial assets stated at the procurement value. The Group will have to apply the IFRSIC 10 for the presenting of goodwill, investment in capital instruments and financial assets stated at the procurement value in

104

advance, commencing with the day when the Group has applied the measuring criteria under the IAS 36 and IAS 39 for the first time (i.e. 1 January 2004).

Disclosures to the Cash Flow Statement The Cash Flow Statement is drawn up according to the indirect method of reporting cash flow from the data from Balance Sheet of 31 Dec. 2006 and the Balance Sheet of 31 Dec. 2005, and from the Profit or Loss Statement for 2006, as well as from additional data required for the adjustment of inflows and outflows, and for the purpose of structuring the more relevant items.

DISCLOSURES OF ITEMS OF THE INCOME STATEMENT 1. Revenues

Sales structure according to type Sale of products and services in domestic market Sale of products and services in foreign markets Sale of materials and merchandise in domestic market Sale of materials and merchandise in foreign markets Total

2006 4,206,133 2,291,623 296,537 875,835 7,670,128

in thousand SIT 2005 4,168,606 2,654,826 239,668 362,774 7,425.873

in thousand SIT

Geographical segments Rest of the world

EU

Net sales revenues from third party Operating Profit or Loss

Group

2006

2005

2006

2005

2006

2005

5.744,695

5,690,777

1,925,433

1,735,096

7,670,128

7,425,873

-101,876

-721,235

41,271

-4,977

NET FINANCIAL RESULT Tax on profit Net Profit or Loss for the current period TOTAL ASSETS

10,913,794 10,371,656

TOTAL LIABILITIES Investments

1,638,774

-60,605

-726,212

283,323

51,980

16,627

38,800

239,345

-635,432

2,604,206 12,552,568 12,975,862

4,605,212

4,448,440

622,935

1,577,301

5,228,147

6,025,741

268,817

424,191

28,215

1,378,759

297,032

1,802,950

Industry Segments

thousan SI Security printed matter 2006

2005

Commercial printed matter 2006 105

2005

Other 2006

Total 2005

2006

200

Net sales revenue from third party

1,514,134

1,166,432

5,595,192

5,803,781

560,802

455,660

7,670,128

7,425,87

-29,570

-137,311

-20,083

-535,261

-10,952

-53,640

-60,605

-726,21

283.323

51.98

16,627

38,80

239,345

-635,43

Operating Profit or Loss NET FINANCIAL RESULT Tax on profit Net Profit or Loss for the curr.period TOTAL ASSETS TOTAL LIABILITIES

2,799,718

2,102,448

8,715,962

10,052,524

1,036,888

1,094,240

841,807

3,728,650

4,855,255

405,257

328,679

5,228,147

6,025.74

62,930

77,245

210,796

1,695,545

23,306

30,160

297,032

1,802,95

Investments

820,890 12,552,568 12,975,86

'Other' in the Sales revenues comprises the revenues from the sale of materials and merchandize and fixed assets.

2. Expenses in thousand SIT Cost as to natural type, changes in value of inventories Cost of merchandise and materials sold Cost of materials used, and services Labour cost Depreciation Other operating expenses Change in inventories of finished products, Work in progress and semi-manufactures Total (operating) expenses

2006 871,074 4,024,018 2,038,839 950,366 174,316

2005 784,014 4,107,535 2,064,562 1,041,967 261,909

-29,750 8,028,863

78,295 8,338,282

Labour cost

2006 1,419,535 167,657 107,414 344,233 2,038,839

Wages and salaries, gross Cost of pension insurance Other social security cost Other labour cost Total labour cost

in thousand SIT 2005 1,434,266 191,990 100,203 338,103 2,064,562

The wages and salaries costs are accounted as required by Collective Agreements, Internal rules on payroll and other receipts, the Decree on the costs recognised as deductible tax expenses, and individual service contracts. Other labour costs are all the remaining

106

expenses for meals, travel, holiday allowance, termination benefits on retirement, and the tax on wages/salaries paid.

The Parent company allocated in the reporting year SIT 52,312,000 for additional pension insurance, together with the employees who have waived 1.615% of their gross wage for the same purpose. The Company paid SIT 55,173,000 to this purpose in the preceding year, under the same terms.

3. Other operating revenues

Breakdown of other income Profit from the sale of fixed assets Reversal of impairment of tangible fixed assets Revenues from reversal of provisions Capitalised own products and/or services Elimination of revaluation of trade receivables and inventories Refunds for damages, subsidies and grants received Other Total

107

2006 9,652 19,353 103,219 63,308

in thousand SIT 2005 5,715 0 53,033 0

28,738 22,013 51,846 298,129

4,278 25,131 98,040 186,197

4. Net income (expenses) from financing

Interest revenues Revenues from dividend and other participation in profit Foreign exchange gains Revenues from the sale of financial investments Other financial revenues Change of fair value of financial instruments Total financing revenues

2006 29,351 73,887 1,239 236,980 4,123 97,223 443,803

(in thousand SIT) 2005 20,603 63,804 19,239 95,561 1,515 8,649 209,425

Interest expenses Foreign exchange losses Expenses from the sale of financial investments Other financial expenses Financial expenses owing to impairment Total costs from financing

146,853 9,220 483 2,391 1,533 160,480

67,207 6,187 96 344 83,611 157,445

Total net income from financing

283,323

51,980

In 2006, the Group reclassified certain financial investments from the category of financial assets held for sale into the category of financial assets at fair value through Profit or Loss.

In 2005, the changes to the accounting policies had an impact on the decrease of net revenues from financing by SIT 10,287,000.

5. Income for Tax purposes

2006 5,427 -22,054 -16,627

Tax accounted Deferred tax assets Total

(in thousand SIT) 2005 4,234 -43,034 -38,800

Effective rates for Corporate Income Tax

(in thousand SIT) 2006 Total Profit or Loss before tax Tax effects: Tax accounted by applying the general tax rate adjustment to tax rate from other tax jurisdiction

2006

2005

222,717

2005 -674,232

25.0%

55,679

25.0%

-168,558

-0.6%

-1,357

0.2%

-1,391

108

Tax-exempt income

-13,2%

-29,348

0,7%

-3.812

0,0%

0

-0,6%

4,512

34,8%

77,554

-19.9%

134,223

Tax relief

-26.3%

-58,606

0,0%

0

Tax Loss

-28.7%

-63,876

0,0%

0

1.5%

3,327

0.6%

-3,774

-7,5%

-16,627

5,8%

-38,800

Income increased by tax Non-deductible expenses (for tax)

Other changes to Tax base Total taxes 6. Disclosures of amounts for Auditors

The total amount spent for auditing services came to SIT 2,901,000 (in 2006); other disclosures under Section 20 of the Slovenian Companies Act ZGD-1 are omitted due to trivial amounts.

7. Land and buildings, plant and machinery In 2006, the Group invested in land, buildings, plant and equipment SIT 297,032,000.

Changes in property, plant and equipment

(in thousand SIT)

Land

Buildings

Equipment

Other equipment

Investments in progress

Advance s given

Total

286,071

3,275,657

9,101,978

17,604

4,001

5,228

12,690,539

74,933

1,054,092

657,735

400

0

7,297

1,794,457

0

0

0

0

0

229,452

0

16,190

361,004 4,329,749

9,530,261

Procurement value Balance as of 1 Jan 2005 Acquisitions in the fin. year Acquisitions of investments in progress Disposals Balance as of 31 Dec 2005

Balance as of 1 Jan 2006 Matching after Opening Balance

361,004

6,859

20,191

0

16,190

8,522

249,119

4,003

14,252,067

9,530,261

6,859

20,191

4,003

14,252,067

394

-44,172

43,164

80

0

-543

12,685

267,455

12,580

0

0

295,390

0

0

0

0

31,177

0

31,177

0

538,786

492,096

33,973

0

4,003

1,068,858

363,674

3,804,042

9,261,448

28,630

51,448

0

13,509,242

Balance as of 1 Jan 2005

0

1,551,330

5,466,268

11,094

Depreciation

0

109,057

873,581

0

0

0

982,638

Disposals Balance as of 31 Dec 2005

0

0

191,224

10,700

0

0

201,924

0

1,660,387

6,148,625

394

0

0

7,809,406

Acquisitions in the fin. year Acquisitions of investments in progress Disposals Balance as of 31 Dec 2006

0

4,329,749

11,145

2,670

Allowances for

109

7,028,692

Balance as of 1 Jan 2006 Matching after Opening Balance

0

1,660,387

6,148,625

394

0

0

7,809,406

0

0

-17,496

17,206

0

0

-291

Depreciation

0

117,695

780,062

7,394

0

0

905,151

Disposals Balance as of 31 Dec 2006

0

12,870

366,141

98

0

0

379,109

1,765,212

6,545,050

24,896

0

0

8,335,158

286,071

1,724,327

3,635,710

6,510

4,001

5,228

5,661,847

361,004

2,669,362

3,381,636

6,464

20,191

4,003

6,442,661

361,004

2,669,362

3,381,636

6,464

20,191

4,003

6,442,661

363,674

2,038,830

2,716,398

3,734

51,448

0

5,174,084

The net amount Balance as of 1 Jan 2005 Balance as of 31 Dec 2005 Balance as of 31 Dec 2005 Balance as of 31 Dec 2006

The participations in Cetis-SK, dooel, Skopje, and CETIS Print, dooel, Skopje, were sold in July 2006.

Disposals made in 2006 comprise the sale of economically and technically obsolete, but still functional machinery.

Mortgages entered in the Land Register to secure the liabilities for loans received came to SIT 2,481,386,000 and the pledged plant and equipment amounted to SIT 2,262,232,000 (thereof, the remaining debt is only SIT 2,803,126,000); the lien and guarantees received amount to SIT 489,426,000.

8. Intangible fixed assets The long-term industrial property rights stand primarily for the purchased computer software for the renovation of the business information system. The long-term deferred development costs are recognised for projects that prove to be feasible for the project completion for eligible for the use or sale; the purpose is to complete the project and sell or use it; the probability of the economic benefits and the capability of reliable measurement of the costs attributable to the resp. intangible asset.

In 2006, the Group invested SIT 333,898,000 in deferred costs and long-term property rights. The deferred development costs are recorded for the Passport Project.

Changes in intangible fixed assets

110

(in thousand SIT) Long-term deferred costs

Long-term industrial property rights

Intangible fixed assets in manufacture

Total

Procurement value Balance as of 1 Jan 2005

35,366

Acquisitions in the fin. year Acquisitions of investments in progress Disposals Balance as of 31 Dec 2005

322,557

0

15,042

357,923 15,042

671

671

7,050

2,611

9,661

28,316

334,988

671

363,975

Balance as of 1 Jan 2006 Matching after Opening Balance

28,316

334,988

671

363,975

Acquisitions in the fin. year Acquisitions of investments in progress Balance as of 31 Dec 2006

44,404

1,690

1,690

296,321

340,725

0

-671

-671

72,720

632,998

0

705,718

Balance as of 1 Jan 2006

7,050

244,998

0

252,048

Depreciation/amortisation

9,429

49,900

0

59,329

Disposals Balance as of 31 Dec 2005

7,050

2,611

0

9,661

9,429

292,287

0

301,716

Balance as of 1 Jan 2006

9.429

292.287

0

301.716

Depreciation/amortisation Matching after Opening Balance Balance as of 31 Dec 2006

9,430

35,785

0

45,215

Allowances for

291

291

18,859

328,363

0

347,222

Balance as of 1 Jan 2005 Balance as of 31 Dec 2005

28,316

77,559

0

105,875

18,887

42,701

671

62,259

Balance as of 1 Jan 2006 Balance as of 31 Dec 2006

18,887

42,701

671

62,259

53,861

304,636

0

358,497

The net amount

111

9. Investments in associate enterprises

Structure according to type La Societe Sationale des Loteries Sportives (SNLS), Libreville,Gabon – 31% owned KIG KGA, proizvodnja, trgovina, inŞeniring, d.o.o. - 50% owned Lotaria Nacionale SH.A Rruga Kavajes, Porta Kry Esore, Misto Mame, Tirana, Albania, 46.6% owned Total

(in thousand SIT) 2006 2005 11,326

11,239

4,118 1,812 17,256

11,239

The investment in SNLS Gabon does not show any profits yet because it commenced operating in 2006 and the first financial statements will not be ready before mid 2007.

The investments in KIG KGA show the proportional part of profits amounting to SIT 175,000.

The investment in the company Lotaria Nacionale Tirana was acquired on 31.12.2006.

Changes in investments in associated companies (in thousand SIT) Procurement value Net value 11,239 11,239 5,755 5,755 87 87 175 175 17,256 17,256

Balance as of 1 Jan 2006 Purchase Exchange differences Write-up of proportional part of profit Balance as of 31 Dec 2006

10. Investments available for sale (in thousand SIT) 2006 2005 3,346,689 3,073,665

Structure according to years Investments available for sale

In 2006, the Group reclassified certain financial investments from the category of financial assets held for sale into the category of financial assets at fair value through profit or loss.

The opening balance as at 1 Jan. 2005 has been adjusted by the amount of reclassification SIT 462,322,000.

112

Changes in investments available for sale (in thousand SIT) Procurement value Balance as of 1 Jan 2005 Purchase Sale

Exchange differences Transfer to financial investments through P/L Change in Fair Value Balance as of 1 Jan 2006 Purchase Sale Change in Fair Value Balance as of 31 Dec 2006

2,194,933 1,639,302 174,853 145 -462,322 -82,271 3,114,934 592,936 534,406 173,385 3,346,849

Allowance (Impairment) 160

41,109 41,269 41,109 160

Net value 2,194,773 1,639,302 174,835 145 -462,322 -123,380 3,073,665 593,936 493,297 173,385 3,346,686

11. Loans granted (in thousand SIT) 2006 2005 312,342 158,438

Structure according to type Loans granted

This item comprises the loans granted to the associated company, employees for the repurchase and development of residential facilities, and funds invested in long-term bonds issued by a bank.

Changes in loans granted (in thousand SIT)

Balance as of 1 Jan 2005

Increases Repayments Transfer to short-term loans Exchange differences Balance as of 1 Jan 2006 Increases Repayments Transfer to short-term loans Exchange differences Balance as of 31 Dec 2006

Procurement value 181,899 21,713 24,641 20,211 -322 158,438 184,632 22,202 8,640 114 312,342

113

Allowance (impairment)

Net value 181,899 21,713 24,641 20,211 -322 0 158,438 184,632 22,202 8,640 114 0 312,342

12. Deferred tax assets and liabilities for tax (in thousand SIT) Receivables

Investments Receivables

Receivables

31 Dec 2006

31 Dec 2005

Liabilities

Liabilities

31 Dec 2006

31 Dec 2005

Receivables - Liabilities 31 Dec 2006

31 Dec 2005

4,943

-13,327

58,636

0

-53,693

-13,327

11,601

13,377

0

0

11,601

13,377

Inventories Provisions for termination pay

6,067

7,247

0

0

6,067

7,247

59,193

82,253

0

0

59,193

82,253

Other provisions

4,148

0

0

0

4,148

Tax Loss Total

53,298

8,062

0

0

53,298

8,062

139,250

125.351

58,636

0

80,309

96,155

For the deferred tax account, the Group has applied the Balance Sheet Liability Method and included the temporary differences between the tax base of a particular asset or liability and its book value in the Balance Sheet. The 23% tax rate was used except in tax loss, where the Company applied the tax rate ranging from 20% to 23% in view of utilising the tax loss over the coming years.

The tax base for deferred tax liabilities is the surplus from the revaluation of investments available for sale and measured at the fair value through profit or loss.

In deferred tax assets, the tax base is the provisions made for years-of-service rewards and termination benefits on retirement, tax loss and temporary differences in the tax on profit account in investments, receivables, inventories and other provisions that will be recognised as tax deductible in subsequent periods.

The Group has recognised deferred tax assets for the tax loss based on the estimate that in the coming years taxable profits will be available, against which the deferred tax asset will be used in future.

In the years when the Company will be utilising the tax loss, the decrease in deferred tax assets will mean an adequate decrease of profit.

The balance of investment tax concessions amounts to SIT 146,460,000 and an unused tax loss of SIT 247,900,000.

Changes in temporary differences in 2005 (in thousand SIT)

Investments Receivables Inventories

Recognised 1 Jan to revenues/ Recognised 2005 expenses in capital -49,764 18,441 17,996 0 13,377 0 7,247 114

31 Dec 2005 -13,327 13,377 7,247

Provisions for termination pay, other 86,346 Other provisions 0 Tax Loss 0 Total 36,582 Changes in temporary differences in 2006

-4,093 0 8,062 43,034

82,253 0 8,062 97,612

0 17,996

(in thousand SIT)

Investments Receivables Inventories Provisions for termination pay, other Other provisions Tax Loss Total

Recognised 1 Jan to revenues Recognised 2006 / expenses in capital -13,327 -1,315 -39,052 13,377 -1,776 0 7,247 -1,180 0 82,235 0 8,062 96,155

-23,059 4,148 45,236 22,054

31 Dec 2006 -53,694 11,601 6,067

0 0 0 -39,052

59,194 4,148 53,298 80,614

13. Inventories

Structure according to type Materials Work in process Products Merchandise Total

2006 480,623 214,425 141,567 60,833 897,448

(in thousand SIT) 2005 469,342 166,938 146,225 89,361 871,866

Allowance for inventory is determined according to inventory type and movement. No new allowances had to be made other than those made in the past periods. In examining the inventories in the stores accommodating items under complaint, the inventories of materials, products and merchandise that did not show any change/movement for more than 12 months, the Group followed the same principles as in the preceding years.

The increase in inventories of materials and work in progress can be attributed to bigger purchases of materials and to commercial decisions relating to sales.

14. Short-term financial investments at fair value (in thousand SIT) 2006 2005 440,690 462,322 440,690 462,322

Structure according to years Short-term investments Total 115

In 2006, the Group reclassified certain financial investments of SIT 462,322,000 from the category of financial assets held for sale into the category of financial assets at fair value through Profit or Loss. The opening balance as of 1 Jan. 2005 has been adjusted by the amount of reclassification.

All the short-term investments directly affecting the Profit or Loss are securities (shares) and investments in mutual funds dealing with securities listed or traded in organized markets.

15. Short-term loans (in thousand SIT) 2006 2005 8,639 32,374 8,639 32,374

Structure according to years Current portion of long-term loans Total

16. Receivables due from tax on profit (in thousand SIT) 2006 2005 0 67,465 0 67,465

Structure according to years Receivable due from tax on profit Total

As a result of the loss in 2005 and overpaid advances for tax, the Group received a refund of SIT 67.465,000 in 2006.

17. Operating and other receivables

Structure according to type Short-term trade receivables Short-term op.receivables due from associated enterprises Short-term operating receivables due from others Short-term advances given Total

2006 1,269,760 96,471 232,411 5,775 1,604,417

(in thousand SIT) 2005 1,434,327 34,707 120,800 3,992 1,593,826

After the initial recognition, receivables of all types are stated in the amounts as taken from the underlying documents, under the assumption of being settled in due time. The original (historical) receivables may be increased at a later time or - irrespective of the payment received or any other method of settlement – reduced by any amount agreed in the contract.

The short-term deferred expenses for royalties, registrations, security and other, and short-term accrued revenues are recorded under other receivables on the ground of transition to another accounting term.

116

Advances given for any item receivable shall be shown in the Balance Sheet with the item they relate to. Advances given for tangible fixed assets are stated in the same group as tangible fixed assets, whereas the advances given for current assets are shown under Inventories.

Any receivables, in which the settlement within due date or in full amount is questionable, are regarded as doubtful receivables; after a court action was initiated, they are regarded as disputable receivables.

When a write-down/-off of an account receivable is based on a document, it is debited to the allowance made for receivables.

All receivables expressed in foreign currency are to be translated into the national currency at the mean rate of the Banka Slovenije.

The Group is selling most of its products and services on open account, the receivables are not secured.

Short-term operating receivables due from others include the contract-based financing of direct liabilities of the associated company, amounting to SIT 162,610,000.

18. Cash and cash equivalents

Structure according to type Cash in banks, cheques and cash in hand Deposits in banks Total

2006 116,256 137,000 253,256

(in thousand SIT) 2005 90,588 11,547 102,135

19. Capital Total capital consists of issued capital stock, the paid-in capital surplus, legal and statutory reserves, retained net profit or loss, own shares as a capital decrease, and the reserve for fair value.

In 2006, the Group did not acquire own shares. As of 31 st December 2006, the Group owns 201 shares designated CETG. In 2006, the Group reclassified certain financial investments from the category of financial assets held for sale into the category of financial assets at fair value through profit or loss.

The effect of the adjustment is shown at the Reserve for fair value as of 1. Jan. 2005.

The reserve for fair value was increased due to the growth of the value of investments available for sale on the stock exchange.

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20. Net earning per share

Net profit (loss) in thousand SIT Weighted average number of ordinary shares Net profit (loss) per share in SIT

2006 239,345 199,799 1,197.92

2005 -635,432 199,816 -3,180.09

The net profit (loss) per share is calculated as a ratio between the basic net income or loss and the denominator standing for a weighted average number of shares.

21. Loans received Loans received comprise long-term loans and short-term loans, with the current portion of the long-term loans.

Long-term loans received (in thousand SIT) 2006 2005 2,207,186 3,040,828

Structure according to years Loans from banks

The biggest loan is the loan raised to finance the long-term financial investment amounting to EUR 6,400,000 with a term of payment of 7 years.

Short-term loans received

Structure according to type Current portion of long-term loans from banks, due in one year Short-term loans from banks Short-term loans received from others Total

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(in thousand SIT) 2006 2005 600,043 350,017 10,000 960,060

350,702 350,006 199,939 900,647

Repayment of loans in 000 SIT

Structure according to type Short-term loans up to one year Long-term loans taken for the term 3 - 7 years Total

2006 -Total Interest repayment 2006 922,583 24,525 399,872 103,019 1,322,455 127,544

The principal 2006 898,058 296,854 1,194,912 in 000 SIT

Structure according to type Short-term loans up to one year Long-term loans taken for the term 3 - 7 years Total

2005 -Total Interest repayment 2005 650,667 33,858 529,508 31,203 1,180,175 65,061

The principal 2005 616,809 498,305 1,115,114

22. Provisions

Structure according to type For seller's warranties For legal action For other purposes For years-of-service awards and termination pay Total

2006 30,111 94,762 2,980 257,362 385,215

(in thousand SIT) 2005 40,544 97,851 0 329,010 467,405

The Group has examined the provisions made, taken into account the corrections and decreased the overall amount of provisions for long-term deferred expenses and the provisions for long-term accrued expenses.

The bases for the provisions are the contracts, legal bases and expert opinions.

The provisions for guarantees given upon the sale of certain products and services were made on the basis of risk assessment for complaints, in percentage of the revenues. The proportional amount of provisions made for the reporting year was reversed.

Provisions made for termination benefits and years-of-service rewards The layoffs resulted in a decrease of provisions, amounting to SIT 71,648,000 on the basis of the calculation for each employee, by applying the projected unit prepared by the certified actuary.

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23. Operating and other liabilities

Structure according to type Short-term operating liabilities to suppliers Short-term operating liabilities arising from advances Short-term liabilities to employees Short-term liabilities to State and other institutions Other short-term liabilities Total

2006 1,116,252 175,659 168,250 97,753 59,136 1,617,050

(in thousand SIT) 2005 1,213,548 64,629 125,419 62,043 151,222 1,616,861

Other liabilities comprise the accrued costs and short-term deferred revenues.

The bases are the original (historical) documents that define an event in terms of time and substance.

24. Fair Value Overview of assets and liabilities at fair and book value

(in thousand SIT)

Investments available for sale Loans granted Short-term loans Operating & other receivables Investments at fair value through profit or loss Cash and cash equivalents Provisions Loans received - long-term Loans received - short-term Operating and other liabilities Total

Book value Fair value as Book value Fair value as as at 31 at 31 Dec as at 31 Dec at 31 Dec Dec 2006 2006 2005 2005 3,346,689 3,346,689 3,073,665 3,073,665 312,342 312,342 158,438 158,438 8,639 8,639 32,374 32,374 1,604,417 1,604,417 1,593,826 1,593,826 440,690

440,690

462,322

462,322

253,256 -385,215 -2,207,186 -960,060 -1,617,050 796,522

253,256 -385,215 -2,207,186 -960,060 -1,617,050 796,522

102,135 -467,405 -3,040,828 -900,647 -1,616,861 602,981

102,135 -467,405 -3,040,828 -900,647 -1,616,861 602,981

The investments available for sale are evaluated at the fair value and depend on the recognition of the investment after the trading date.

Investments at fair value through Profit or Loss are evaluated at the stock exchange price.

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The loans granted and received are evaluated by the calculation (translation) of the amortised cost using the effective interest method that does not differ from the contractual interest rate. Accordingly, the contractual interest rate is used in the calculations.

In operating and other receivables, the impairment to fair value is taken in view of collectability. The receivables are not discounted in view of short-term nature.

The same applies to operating and other liabilities that are not discounted owing to their short-term nature.

The provisions are based on the calculations for individual types, as indicated in Section i) and Note 22.

25. Financial instruments - risk management Exposure to Risk, and Risk Management We may put it that currency risks were excluded at the time of stable exchange rate of the euro, almost all foreign transactions were made in EUR. The Group is aware of the importance attributable to regular control and management of financial risks to which the Group is exposed in the markets, and views it as a relevant precondition for successful operations and achieving of strategic goals. The interest rate risks were notable in the reporting year (a general growth of interest rates). The analysis of these risks has resulted in the assessment that the interest rate risk is higher also on the ground of having raised a new debt, or the guarantees issued. The Group envisions these risks to become higher also as a result of the operations of the Parent Company and subsidiaries.

All the long-term debts are taken in euros or subject to the currency clause. Interest rates are based on the market principles governing the price of money in the European banking market; the interest rate risks have not been hedged so far, as the Group views the interest rate fixations offered to be above the variable rates; lately, these have come close to the ceiling of the acceptable by the year-end 2006.

The fixation of the euro exchange rates was visible throughout 2006 and affected the current financial policy and financial risk management in that field.

Credit risks – we were able to manage this risk already during the procedures of accepting customers' orders, taking into account their credit rating, requesting additional security for our receivables and by limiting our exposure to individual customers; on top of that, a systematic and active collection process was applied.

Despite a slight increase in outstanding receivables, we view the exposure of Cetis to credit risks as moderate.

Currency risks were present primarily in our business relations with East-European countries with soft currencies; our products and services sold to these customers are invoiced in euro. In all markets, the Group has reduced the currency risks with adequate balancing of receivables and liabilities accounted in euro, and by complying with a stable exchange rate policy. It is estimated that the exposure of Cetis to currency risk is moderate.

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The interest rate risks rose due to increased loan volume and the growth of interest rates. We estimate that the interest rate level for all the long-term loans raised, despite contractually agreed fluctuation and the given maturity, is still acceptable; however, adequate hedging will become indispensable. We estimate that the exposure of the company to interest rate risks was higher than a year ago.

Property loss and related risks were systematically, by analytical approach, assigned on insurance companies, thanks to new assistance service.

The short-term solvency risk in Cetis is relatively low thanks to effective management with cash, credit lines for cash flow balancing, satisfactory financial flexibility and good access to financial sources. The Company has succeeded to reduce the long-term solvency risk as a result of more efficient operations than a year ago (2005).

Financial instruments

Financial instruments:

Loans granted to associated companies Loans granted to others Loans granted for repurchase of housing Loans granted for housing development Bonds

Year 2006, in thousand SIT Effective Interest Rate chang. 5% - 5.5%, linked to EURIBOR growth 6% - 7% point value under the Housing Act 7% 5.2%

Current portion of long-term loans

Total 31 Dec 2006

Up to 6 months

From 6 to 12 months

0.2% - 3.6% EURIBOR +0.5% to 1.05%

Secured bank loans - current portion of long-term loans Unsecured bank loans received short-term

EURIBOR + 0.80% to 0.85%

Short-term loans received

3.23% - 3.63%

Total

from 2 to 5 years

164,633

164,633

451

451

13,664

3,392

3,401

13,806

4,720

4,840

119,788 253,256

4,246

8,639 253,256

-2,207,186

-9,484

-600,043

-600,043

-350,017

-350,017

-10,000

-10,000

-2,593,009

6,871

119,788

8,639

Cash and cash equivalents Secured bank loans received - longterm

from 1 to 2 years

253,256

-952.793

-137,019

-2,060,683

-128,327

-1,765,145

Financial instruments:

Effective Interest Rate

Total 31 Dec 2005

Up to 6 months

From 6 to 12 months

from 1 to 2 years

from 2 to 5 years

Loans granted to others Loans granted for repurchase of housing Loans granted for housing development

6% + EUR growth point value under the Housing Act

1,541

1,541

16,916

6,320

10,596

7% + EUR growth

20,193

6,821

13,372

Bonds Current portion of long-term loans

fixed 5.2% point value 6%-7% % + EUR growth

20,211

10,712

Short-term loans granted

3.2% - 3.7%

12,163

12,163

Cash and cash equivalents

0.2% - 3.2%

102,135

102,135

119,788

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119,788 9,499

Secured long-term bank loans received

EURIBOR + 0.5% to 1.05%

Secured bank loans – current portion of long-term loans Unsecured short-term bank loans received Unsecured, short-term loans received

EURIBOR + 0.5% to 1.05% 3-month EURIBOR + 0.85% 3.62% - 3.7%

Total

-3,040,828 -350,701

-163,565

-350,006

-199,940

-199,940 -38,555

-2,220,086

-806,060

-2,076,330

-187,136

-350,006

-3,648,528

820,742

-727,583

Other disclosures Disclosures according to groups of persons: Members of the Management Board, Supervisory Board and staff employed under individual service contracts.

The total receipts received by the groups of persons for the provision of their functions, or performing of tasks assigned: - Management Board

SIT 30,289,000

- Other staff employed under individual service contract (10 persons) - Supervisory Board

138,611,000,

SIT 3,277,000.

Balance of liabilities for dedicated loans granted by the Company to persons from these groups, at the year-end 2006: SIT 2,140,000.

The amount of repaid loans in 2006 came to SIT 912,000.

Events after the Balance Sheet date The relevant events are listed in the Introductory part of this Annual Report.

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CONTACTS Management Board Simona Potočnik, M.A., Managing Director Strategic Development Peter Aužner, Director Economics and Finance Srečko Gorenjak, M.A., Finance Director Business Integration and Human Resource Management Barbara Germ Galič, M.A., Director Purchasing and Logistics Nevenka Mužič, Director Production Boris Lipovšek, MBA, Technical Director Research and Development of Graphic Technology Barbara Sušin, Director Cetis New Technologies Vladimir Tkalec, Director Sales Mateja Luzar, Director of Commercial Printed Matter Mateja Colnarič, Director of Security Printed Matter

Cetis, Graphic and Documentation Services, d.d. Čopova 24, 3000 Celje, Slovenija, EU www.cetis.si info@cetis.si Tel: +386 (0)3 4278 500 Fax: +386 (0)3 4278 836

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